Sydney's fringe office leasing market the hottest in the land
Sydney’s city fringe leasing market is the fastest growing in the country based on rent increases over the past 12 months, according to Savills.
Its director of office leasing Nick Lau said effective rents had grown about 30 to 35 per cent over the year to April.
“Net rental levels are being struck at $620 to $650 a square metre due to a shortage of contiguous options and a limited supply pipeline over the medium term. We can expect upward pressure placed on rents within the Sydney fringe office market over the next 12 to 24 months,” he said.
Firms looking for headquarters that set them apart from those located in city office towers are seeking unique spaces on the city’s fringe.
“The demand is being steered by the younger Gen Y and progressive corporates who favour non-traditional styles of office space,” Mr Lau said.
Surry Hills in particular has been a hotbed of leasing activity in the past 12 months, according to Euan Matheson, Colliers Internationals’ director of office leasing.
“Surry Hills, I think by virtue of the very low vacancy, is seeing some very strong rental growth and I think it will continue to attract high rents and low incentives,” he said.
The better quality office space in Surry Hills is achieving more than $800 a square metre at the top end of the market, on a gross basis, Mr Matheson said.
One such example was the recent leasing of 63 Kippax Street in Surry Hills, he said.
But it is nearby Chippendale that is set to receive the most attention in the coming year.
“Chippendale is a market to look at,” Mr Matheson said. “Historically Chippendale was placed below Surry Hills in rental levels, but I think being a small rental market and with the wider pressure on supply that will be a strong market. A vacancy in Chippendale would be very well placed at the moment.”
The low vacancy rate in both suburbs is at least partly because of the lack of stock due to the high rate of residential conversions. But the residential-centric approach by developers could be set to change.
“I think with rental increases you might see that balance shift and some of the developers who have the ability to go residential and commercial might go commercial,” he said.
In the inner west, the planned metro rail project and associated development of the Bays Precinct is also expected to increase set to see rental demand increase in Glebe and Pyrmont.
Mr Matheson is currently leasing the former Festival Records building at 63 Miller Street, Pyrmont – most recently occupied by Enero Group – in conjunction with Karbon Property.
“Pyrmont is set to benefit from the tightening market. 63 Miller Street is now one of the larger vacancies in the city fringe,” he said.
The success of recent projects such as the nearby 100 Harris Street has helped bring Pyrmont back into the spotlight, Mr Matheson said.
“Pyrmont has always been able to attract and retain big occupiers and I think vacancy in Pyrmont is well placed,” he said.
