key facts - knight frank
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RESEARCH SYDNEY SUBURBAN OFFICE FEB 2019
Senior Analyst
Follow at @KnightFrankAu
Gross Supply Pipeline Suburban Office (excl. minor refurbishments)
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10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
20
10
20
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20
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20
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COMPLETE DA APPROVED UNDER CONSTRUCTION
Key Facts Strong demand amidst limited
supply in the South Sydney
market has seen net effective
rental growth of 11% over 2018.
New office developments over
2018 totalled 69,732 sq m, its
highest year on record. Of this,
over 75% of space has been
leased.
Investment activity over 2018
totalled $494 million, down 11%
on 2017, led by listed and unlisted
funds accounting for 63% of
transaction volumes.
Future supply to slow after record year The Sydney suburban markets
experienced their largest volume of new
supply on record over the past 12 months
with 69,732 sq m of office space added to
the market. New supply was spread
across three markets, the South West
(42%), Inner West (31%) and the South
(27%).
Improved infrastructure and a booming
Western Sydney economy has fuelled
significant development in South West
Sydney. Following its expansion in the
Parramatta CBD, Western Sydney
University opened its campus at 100
Macquarie Street, occupying 8,405 sq m.
This is in conjunction with GPNSW
occupying over 50% of the new
development at 35 Scott Street, Liverpool
(10,068 sq m).
The largest development in the region
was the redevelopment at 25 Restwell
Street, Bankstown (10,525 sq m). Owned
by Bankstown Sport Club, the office
component has only been 25% leased,
causing the rise in South West vacancy.
Future supply over the next two years will
be constrained as the market absorbs the
current supply. South Sydney will be the
only market to see new supply as
construction commences at 40 Ricketty
Street, Mascot (6,900 sq m) and 282-290
Forest Road, Hurstville (8,400 sq m).
Looking further ahead there is c30,000 sq
m of potential new suburban supply in
the pipeline, pending pre commitments
also a low relative to 2018.
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Sydney Suburban Office Market Indicators as at January 2019
Grade Total Stock
(sq m)
Vacancy
Rate (%)
Average A-Grade
Gross Face Rent
Average A-Grade
Incentive (%)
Outgoings
($/sq m)
Average A-Grade Core
Market Yield (%)
South 587,900 5.6 533 17 88 5.25 - 6.00
North 526,442 12.9 449 25 101 6.50 - 8.00
Inner West 529,849 14.4 489 24 90 5.75 - 6.75
North West 320,405 2.1 405 25 75 6.25 - 7.00
South West 234,962 13.6 396 20 89 6.75 - 8.50
West 159,965 6.4 348 20 87 7.50 - 8.50
Total*
2,359,523 9.6
Sydney Suburban Sales $10 million+ By Purchaser Type ($m)
Vacancy Rates by Suburban Region January 2009 to January 2019
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
NORTH SOUTH INNER WEST
SOUTH WEST NORTH WEST
-
200
400
600
800
1,000
1,200
1,400
1,600
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Developer Government Offshore
Other Private Investor Super Fund
REIT/Listed Fund Unlisted/Wholesale Owner Occupier
South Sydney rental growth leads charge Demand for prime office space has
continued to buoy significant rental uplift
in the South, with the precinct’s rental
growth rate outperforming other
suburban markets over the last 12
months.
Average gross face rental growth in
South Sydney rose 6.4% over 2018, the
highest of all suburban precincts. While
the rate of growth has slowed marginally
from 2017 (14.3%), incentives have
begun to contract on the back of new
supply, resulting in net effective growth
of more than 11% during 2018.
Rental growth in South Sydney is
anticipated to continue over the next 12
months, with the limited supply and
strong demand from tenants seeking
office space in the region.
The South West and North recorded
0.3% and 1.3% increase year-on-year,
while in the North West, West and Inner
West average gross face rental growth
has stabilised.
Vacancy rates increase following new supply
Vacancy has risen in almost all precincts
over the last 12 months as the market
consolidates new supply and trailing
withdrawals for residential conversions.
New building completions in 2018
reached a decade-high, underpinned by
opportunistic developers targeting
speculative projects in the South West
and Inner West in particular. Vacancy in
the Inner West reached 14.4% in
January 2019, up from 8.6% at the same
time last year, while the South West rose
from 9.1% to 13.6% over the same
period.
Although the withdrawal of stock and
new supply has been a boon for some
precincts, in the North, tenant demand
has begun to abate as displaced tenants
seek out competitive stock in other
locations, resulting in a increase in
vacancy.
The North West precinct was the only
market to record a decline in vacancy
and the only market with no withdrawals
or new developments. New Metro rail
infrastructure due later this year will
likely support an increase in demand.
Investment activity subdued due to lack of stock Investment activity for 2018 totalled
$494 million, down 11% from the 2017
calendar year. The fall in sales volumes
has been due to the lack of available
stock rather than a lack of demand.
Private investors and Unlisted/Wholesale
funds were the most active accounting
for 75% of total transaction volumes for
2018.
South Sydney Rent $/m2 average gross face rent
250
300
350
400
450
500
550
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
GROSS RENT
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RESEARCH SYDNEY SUBURBAN OFFICE FEB 2019
South
Net absorption of 18,056 sq m was
recorded in the South region over
2018. More specifically driven by
Mascot (17,770 sq m) following the
completion of the fully leased
development of Goodman’s stage 3
Corporate Connect Centre.
Withdrawals totalled 1,851 sq m, its
lowest since 2015, emphasising the
slow down in residential conversions
in South Sydney.
Positive rental growth in the CBD and
city fringe has flowed onto the South
Sydney market with rental growth of
6.4% over 2018.
Net Supply 20,935
Vacancy Change +30bps
Rent Growth +6.4% YoY
Inner West
North West South West
Net Supply -23,681
Vacancy Change +321bps
Rent Growth +0.3% YoY
Net Supply 21,650
Vacancy Change +583bps
Rent Growth 0% YoY
Net Supply 0
Vacancy Change -57bps
Rent Growth 0% YoY
Net Supply 28,973
Vacancy Change +457bps
Rent Growth +1.3% YoY
Net Supply -1,000
Vacancy Change +63bps
Rent Growth 0% YoY
The withdrawal of office stock has
seen displaced tenants move to the
major north shore markets rather than
relocate within the North. This has led
to negative absorption of 38,263 sq m
and an increase in vacancy over 2018.
Development in the North remains
subdued with no new supply added for
the third consecutive year and will
remain the same with no
developments in the pipeline.
Residential development has fueled
the number of withdrawals totaling
23,681 sq m. Epping recorded the
largest withdrawals in the North with
8,189 sq m.
The Inner West recorded the largest
increase in vacancy across the
suburban markets. Vacancy rose
from 8.6% to 14.4% in the 12 months
to January 2019. SOP and Rhodes
being the catalyst for the rise in
vacancy.
New developments at 4 & 11 Murray
Rose Avenue, which have yet to be
fully leased, saw vacancy in SOP rise
from 17.6% to 24.4%.
Nokia (7,500 sq m) vacating 5 Rider
Boulevard was the catalyst for the
large rise in vacancy in Rhodes which
has climbed to 14.2% from 4.5% in
the last 12 months.
The North West market remained
subdued throughout 2018 with no
new developments or withdrawals.
Vacancy declined slightly from 2.63%
to 2.06% over the year, making it the
tightest suburban office market
surveyed.
The Northwest Sydney Metro is due
for completion by year end,
improving accessibility to the region,
in turn vacancy is forecast to remain
tight.
The South West had a record year of
new supply with 28,973 sq m added
to the market stemming from three
developments.
The new speculative supply which is
yet to be fully leased has been the
catalyst for the rise in vacancy from
9% to 13.6%.
Looking ahead with the limited
available stock in Parramatta we
anticipate to see an increase in tenant
activity in the South West; more
specifically Bankstown and Liverpool
as they also offer tenants more
affordable office space.
The West region remains the
smallest suburban market with
Blacktown and Penrith accounting
for over 90% of total stock in the
region.
There was no rental growth for the
period due to the limited competition
of stock in the region.
There are two potential office
developments in the pipeline in
Penrith both DA approved and
pending pre-commitments.
North
West
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Major Office Supply - Sydney Suburban Office
Address Suburb Region Area (sq m) Developer/Owner Stage Est. Date of Compl.
9 Murray Rose Ave SOP Inner West 5,500 NRMA Complete 2017
289 King St Mascot South 5,000# Private Complete 2017
185 O'Riordan St (Stage 2) Mascot South 11,730 Goodman Complete 2017
11 Murray Rose Ave SOP Inner West 5,810 FDC Complete 2018
25-35 Scott St* Liverpool South West 10,068 Private Complete 2018
25 Restwell St Bankstown South West 10,525 Bankstown Sports Complete 2018
185 O'Riordan St (Stage 3) Mascot South 19,084 Goodman Complete 2018
4 Murray Rose Ave† SOP Inner West 15,840 GPT Complete 2018
100 Macquarie St++ Liverpool South West 8,405 Private Complete 2018
40 Ricketty Street Mascot South 6,900 Private U/C 2019
282-290 Forest Rd Hurstville South 8,400 Coombes U/C 2020
29 Bourke Road Alexandria South 24,000 Tipalea DA Approved 2021+
304-306 High St Penrith West 4,175 Private DA Approved 2021+
46-50 Belmore Street Penrith West 10,500 Sandran DA Approved 2021+
Sydney Suburban Office Regions
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RESEARCH SYDNEY SUBURBAN OFFICE FEB 2019
Recent Major Sales Activity Sydney Suburban Office Market
Address Price $ mil Core
Market NLA sq m
$/sq m
NLA Vendor Purchaser Sale Date
2-14 Elsie Street, Burwood 49.00 6.12* 6,693 7,321 Atlas Property Real Asset
Management Dec-18
447 Victoria Street, Wetherill Park 26.50 N/A 3,440 7,703 Sunrise Corp Pty Ltd Royal Bayside Oct-18
9-11 Blaxland Road, Rhodes 13.00 N/A 2,805 4,635 Private Private Oct-18
18 First Avenue, Blacktown 12.50 N/A 2,509 4,982 Private Private Sep-18
223-237 Liverpool Road, Ashfield 46.00 6.35 9,719 4,733 GDI No. 42 Pty Ltd Private Aug-18
3 Carlingford Road, Epping 36.00 5.38* 4,702 7,656 Centuria Private Jun-18
4-10 Bridge Street, Pymble 14.55 6.20 2,468 5,895 Private FIFE Capital Apr-18
2 Lincoln Street, Lane Cove 28.08 6.80 9,263 3,031 Private Aviator Capital Mar-18
6 Clarendon Street, Artarmon 21.0 N/A 3,222 6,518 Private Private Mar-18
2-14 Meredith Street, Bankstown 74.50 7.0 13,728 5,427 SC Capital & Fortius Sandran Pty Ltd Feb-18
11 Bowden Street, Alexandria 48.85 5.81 5,686 8,591 Marshall Abacus Jan-18
Recent Leasing Activity Sydney Suburban Office Market
Address Suburb Region NLA
(sq m) Rent
Term
(yrs) Lease Type Tenant
Start
Date
Bld B, Rhodes Corporate
Park
Rhodes Inner West 3,510 $425n 10 New Super Retail Group Jul-19
5 Rider Boulevard Rhodes Inner West 1,800 $475n 7 New Bunnings Feb-19
Bld F Rhodes Corporate Rhodes Inner West 2,500 $425n 10 New Man Power Oct-18
10 Rodborough Road Frenchs Forest North 1,183 $220n U/D New Accretive Oct-18
35 Scott Street Liverpool South West 1,003 $480n 7 Pre-com. GPNSW Sep-18
35 Scott Street Liverpool South West 4,673 $380n 10 Pre-com. DFACS Jun-18
4 Murray Rose Avenue SOP Inner West 9,400 U/D 12 Pre-com. NSW RFS Jul-18
197 Coward Street Mascot South 1,250 $375n 5 New GPNSW Jun-18
100-124 Macquarie Street Liverpool South West 8,000 U/D U/D Pre-com. WSU Mar-18
58 Norwest Boulevard Baulkham Hills North West 1,321 $335n 5 New Steadfast Mar-18
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RESEARCH
Ben Burston
Partner, Head of Research and Consulting
+61 2 9036 6756
Katy Dean
Associate Director
+61 2 9036 6612
Marco Mascitelli
Senior Analyst
+61 2 9036 6656
NSW
Scott Timbrell
Partner, Head of Metropolitan Sales and
Western Sydney
+61 2 9036 6769
CAPITAL MARKETS
Wally Scales
Director, Metropolitan Sales
+61 2 9761 1813
[email protected] Arland Domingo
Director, Metropolitan Sales
+61 2 9028 1122
OFFICE LEASING
Giuseppe Ruberto
Partner, Head of Office Leasing, North
Shore
+61 2 9028 1115
Tom Bartlett
Director, Office Leasing, Western Sydney
+61 2 9761 1873
Suburban Stock Definition:
Includes office stock in the Sydney metropolitan area above 1,000 sq m in size. It excludes
stock in the CBD and City Fringe and the major office markets of North Sydney, Chatswood,
Crows Nest/St Leonards, North Ryde/Macquarie Park and Parramatta.
Examples of major suburbs for each region are as follows:
South: Botany, Mascot, Alexandria, Rosebery, Hurstville
North: Pymble, Gordon, Frenchs Forest, Belrose
Inner West: Sydney Olympic Park, Rhodes, Ashfield, Burwood
North West: Baulkham Hills, Bella Vista
South West: Liverpool, Bankstown, Campbelltown
West: Blacktown, Penrith