Blog - TGC News
TGC CONNECT | SEPTEMBER 2018 MARKET WRAP
The first quarter of the new financial year is already over, and the end of the calendar year is just around the corner (gosh time really flies!). Here’s a snapshot of the Sydney commercial office space market, including key trends that are having an impact.
Sydney CBD gross rental rates for A-grade office premises are the highest in Australia, averaging $1,245 per square metre and providing net rental yields of just under 5%. Rent for B-grade CBD office space in Sydney averages about $1,075/m2 and is providing a similar yield.
A-Grade office space on the north shore is delivering similar solid net rental returns, with North Sydney average 5.25% and Macquarie Park 5.75%. Gross rental rates in these areas average about $975 and $485 respectively.
In the broader Sydney office market, A-Grade space in Parramatta is continuing to perform solidly after delivering the highest average rent increases last financial year. Gross rent rates currently average about $670/m2, providing net yields of 5.5%.
Sydney office space is continuing to achieve impressive capital growth rates, with the latest annual averages showing that Parramatta (37% increase) and North Sydney (27%) are leading the way, followed by Macquarie Park (16%) and the CBD (7%).
A-Grade office premises in the CBD are the most expensive in Australia, currently attracting an average value of about $20,000/m2. Comparable North Sydney office space averages just over $15,000/m2, followed by Parramatta (around $10,000/m2) and Macquarie Park (about $7,000/m2).
Parramatta is again the best performer in terms of vacancy rates in the Sydney office market. However, all key areas are enjoying vacancy rates that are well below the national average of approximately 9%:
- Parramatta: a vacancy rate of just over 3%.
- Sydney CBD: 4.5%
- Macquarie Park: 5.5%
- North Sydney: just over 6%.
There has been a slight increase in office stock availability in Parramatta over the past quarter, while the Sydney CBD and North Sydney have experienced slight decreases. Stock levels have remained fairly constant in Macquarie Park.
Trends that are likely to continue impacting the Sydney office space market include:
1. The increasing demand for coworking spaces
Coworking spaces allow independent people and businesses to network and share office space on very flexible terms. The demand for more of these types of workspaces and working arrangements is increasing globally. Australia is following this trend and it is disrupting the traditional commercial office space leasing market in several ways. For example:
- Shorter-term, more flexible leases are increasingly being demanded.
- There is increasing pressure being placed on vacancy rates and rental yields, as the supply of coworking spaces increases to meet the growing demand.
2. Reduced Asian investment
Asian investment in Australian property (particularly from China) has been impacted by the tighter regulations imposed in recent years by Australia’s Foreign Investment Review Board. Australia’s foreign investment restrictions were tightened in response to growing public concerns over foreign ownership of Australian property, including both commercial and residential. This has resulted in foreign investment in the Australian market decreasing in both sectors.
3. The seven-month Epping to Chatswood train line closure
On September 30, the train service between these stations ceased to allow the Macquarie line to be upgraded to the Sydney Metro system. The line isn’t expected to reopen again until the end of April next year, however, the disruption is likely to temporarily affect the commercial property market in the affected areas.
How we can help
TGC has over 25 years of experience in leasing and selling commercial property in Sydney. Contact our team if you’re looking to lease, buy or sell commercial real estate or need someone to help you manage your commercial property.
We’ll take the time to understand your needs and provide you with professional advice and service that is second to none!