An influx of white collar workers to Sydney’s Central City will keep vacancy rates low.
The Parramatta office market will struggle to keep up with demand due to an influx of white collar workers and undersupply in the area, according to Colliers International.
Deloitte’s report ‘Designing Western Sydney’ outlines the need to create 200,000 new jobs in the region by 2020, to address unsustainable worker transport challenges. These jobs are forecast to primarily be in the Agribusiness, Tourism, Professional Services and Health and Education sectors. If participation and education attainment levels in the region are improved the report estimates these workers will add an additional $32 billion to the national economy.
According to Deloitte, with one in ten Australians already living in Western Sydney – the country’s 3rd largest region in terms of contribution to GDP – and one million more expected by 2031, the region is poised to become one of our great urban areas over the next few decades.
Theo Psychogios from Deloitte Access Economics, said that a large proportion of demand for space is likely to come from the catalyst industries such as health, higher and international education, professional services (in particular through the financial services sector and public sector) and cultural and creative industries.
“Parramatta, labelled “Sydney’s Central city”, remains the main white collar employment catchment area for the Greater Western Sydney region,” said Kristina Mastrullo, Associate Director of Research at Colliers International.
“As Deloitte expect an additional 200,000 jobs created in Western Sydney by 2020, it’s likely Parramatta will host a large majority of these workers.”
“With the level of pre-commitment to be experienced, we expect the commercial core of Parramatta to expand through new development supply to accommodate these future workers.”
Colliers International research states that up to 2,400 white collar workers have been added to the Parramatta office market within the last 12 months.
“As a result of government decentralisation, lack of new supply, and the displacement of tenants due to conversion to other uses, Parramatta’s total vacancy is now one of the lowest nationally,” said Alex Brown, Director of Office Leasing at Colliers International, Parramatta.
“With the vacancy rate in the first half of 2017 at 4.3%, and A Grade vacancy remaining at zero percent, tenants have been faced with limited choice. This has resulted in landlords being able to achieve increased net effective rents throughout 2017.”
“In one instance, we have seen one landlord secure a rent of $420/m2 net in March 2017, and then in July 2017 secure rents of $480/m2 net for similar space in the same building. That is a considerable increase in a short space of time.”
New supply in Parramatta has been limited. The first stage of 1 Parramatta Square opened in January 2017, being fully committed to the University of Western Sydney.
Other new developments such as 105 Phillip Street and 3 Parramatta Square have been 100% pre-committed from non-Parramatta tenants. These developments, projected for completion between 2019 and 2021, will bring an additional 149,550sqm of prime space to the office market, 104,000sqm of which is pre-committed.
“Parramatta is currently lacking in prime quality space and with this level of pre-commitment over the next 3 years, vacancy is only expected to tighten. Over the next three years to January 2022, total market vacancy is expected to reduce to sub-3%, from a current vacancy of 4.3%. This is forecast to cause an increase in rents, especially in B grade stock as prime grade assets are secured prior to completion,” said Kristina Mastrullo.
Although the market remains tight, Parramatta Council is attempting to solve the issue of undersupply in the area.
“Parramatta Council’s recent decision to modify 8 Parramatta Square’s use from Residential to 71,000 square meters of office space reflects the confidence in the commercial leasing market,” said Alex Brown.
“Notable vacant space is likely to become available in 2020 and 2021 with several tenants expected to relocate to new opportunities including Parramatta City Council, The Office of State Revenue, and Department of Planning and Environment, which will provide up to 15,000 square metres of backfill space. CBA is due to vacate 101 and 150 George Street in 2022 creating approximately 40,000 square metres of backfill space,” Alex Brown said.
“This low vacancy rate has had a flow-on effect to other Western Sydney markets including Rhodes and Sydney Olympic Park. As a result many tenants that we are looking after are being required to consider these neighbouring markets due to the lack of availability in Parramatta.”