Sydney CBD's planning changes and the impact on office values

Commercial office space is seen as the heartbeat of Sydney CBD and pivotal to its status as Australia’s most productive and strategically important employment center, generating over $108 billion of economic activity annually. 

However, development of new residential floor space has recently outweighed commercial development growing concerns for the city’s future workplace and business capacity. In response, the City of Sydney has released its Central Sydney Planning Strategy to help plan for growth and facilitate an engaging City Centre that serves its forecast employment growth.

The Central Sydney Planning Strategy (first released in 2016) identities and translates the city’s spatial controls to set a planning landscape that will balance the long-term residential land market whilst encouraging growth of commercial, retail and cultural space within Sydney CBD. The City of Sydney Council has now exhibited the planning strategy (as an unofficial exhibition) in attempt to force the Department of Planning to expedite approval. 

With 580,000sqm of office stock withdrawn from the market since 2015 and commercial office rents and capital values having increased by approximately 40-50% in recent years one can’t help but question what impact the new planning will have on values. 

What are the planning changes required?


Unprecedented withdrawal of office stock for hotel and residential development, and the governments compulsory acquisition of 19 CBD buildings has not been offset by new office development.  Central Sydney’s Planning Strategy has been designed with the aim of preserving Sydney’s continued dynamism for business and economic growth. New planning strategies will encourage increased commercial development to protect the city’s economic vitality and resilience, providing development incentives to respond to the changing needs of the market.

What are the major changes? 

Major changes to planning include: 

  • Floor Space Ratios (FSR’s) being increased for office and reduced for residential
  • Limiting residential development to 50% of space on buildings over 55 metres
  • Increasing density and heights
  • New planning will require a site area of 1,000sqm to achieve bonus FSR in addition to Base FSR.  (Current planning does not require a minimum site area to achieve bonus FSR).

    How will these changes impact supply and the office investment market? 

    There is currently already a new supply pipeline underway that is meeting trending employment growth until 2024, delivering approximately 100,000sqm of new office per annum. Upon gazettal, the new planning strategy will increase CBD office FSRs, encouraging greater commercial development and quicker planning approval times for commercial use.

    What does this mean for owners and investors?


    Developers are having regard to the new planning changes, land banking, particularly within the tower cluster site areas with the aim of increasing their site footprints to achieve additional height uplift upon planning gazettal. For example, major players including Investa, Lendlease and Built are acquiring adjoining buildings or blocking stakes of at least 25% + to stamp their control over adjoining strata properties. Strata legislation laws introduced in late 2016 have made this possible which requires 75% of lots to agree before a building can be sold.

    With the minimum site area to develop above 55 metres set to increase from 800sqm to 1,000sqm under the Central Sydney Planning Strategy, smaller buildings when amalgamated with adjoining properties that combined will exceed 1,000sqm are providing an uplift in redevelopment value to owners.

     

    Read the full commentary here.


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    Tom O'Neill

    Manager | Sydney CBD Sales

    Sydney CBD

    Tom is focused on private and institutional divestment and acquisition strategies within the Sydney CBD working across office, retail, development sites and strata propety including amalgmation strategies.

    Tom's previous experience as a valuer at JLL provides Tom with an excellent understanding of purchaser metrics, the running of financial cash flow models and development feasibilites for varying sensitivity scenarios.

    Through his time at Colliers Tom has established excellent relationships with his clients and a reputation for deliverying exceptional service and outstanding results.

     

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