Will the Sydney Metro change where you work?
Everyone agrees the Sydney Metro will change how and where people work. But there’s fierce disagreement of what those changes will be.
This week’s The Australian Financial Review Property Summit heard from some of the nation’s biggest office landlords that Sydney’s new metro line will win more tenants to the CBD, at the expense of the suburbs.
But the jury is still out on whether the new ride will be the death knell for North Sydney’s office market.
A raft of recent office-leasing deals shows how many companies are moving closer to the CBD to lock in long-term deals, taking advantage of falling rents while upgrading their location. All suburbs except North Sydney are struggling to replace existing tenants.
Among the moves away from North Sydney have been JHA Consulting Engineers and Worley, which both moved to the city centre to take just under 2000 square metres each.
Toyota Finance and Swiss Exchange-listed DKSH also recently committed to leaving St Leonards for the CBD-based towers Grosvenor Place and 321 Kent Street, respectively.
A major reason behind DKSH’s move was the metro upgrade, which made having an office in the CBD much more attractive, Colliers leasing managing director Cameron Williams said.
“If you’re a tenant sitting in the north, you know the CBD is so much more accessible to staff. It’s a highly efficient way to get your staff into an office, and all of a sudden, it opens up fantastic amenity,” Mr Williams said. “With the metro opening up, I think we’ll see many more companies moving to the CBD because of that increased accessibility.”
Those recent office moves would appear to back the thesis made by Charter Hall chief executive David Harrison, who this week reiterated his long-held view of the North Sydney office market as a “bloodbath”.
“North Sydney, I told you three years ago, I thought as a bloodbath. We don’t own anything in North Sydney, thank God. You just can’t have the level of new supply in a market that small,” he told the Property Summit.
“The metro has made it incredibly attractive for tenants not to bother to go to Chatswood or St Leonards or North Sydney because it’s four minutes from the Martin Place.”
Upgrade potential
But there is also a counter-argument playing out, as companies head to North Sydney from further out, taking advantage of its newer and quicker connection to the CBD through the Victoria Cross station.
These moves have included the BBC moving from McMahons Point, Lenovo moving from Chatswood, Australian Radio Network moving from Macquarie Park and Pandora moving from Belrose, all to North Sydney. Each of them has taken more than 1000 square metres of space.
“While the Sydney CBD is better connected than ever, perhaps North Sydney is the market most positively enhanced, given its increased value proposition and the growth of the premium-grade options,” said Craig Dolman, director of office leasing specialist Cadigal.
Dexus chief executive Ross Du Vernet, who also spoke at the Property Summit this week, conceded that he previously overestimated the draw of North Sydney and would rather have an older office tower in the CBD than a higher-quality building further away.
But he still believed North Sydney could draw tenants. Dexus has offices in North Sydney, such as 100 Mount Street and 56 Berry Street.
“We developed an asset in North Sydney, completed in 2019 and our thesis, when we developed this, was that there was no new supply coming,” Mr Du Vernet said.
“We’re going to develop this building in North Sydney, and we’re going to basically be the cheapest product that has the view of the city, and we’re going to drag people across the bridge.
“How many people do you think we dragged across the bridge? No tenants [from the CBD]. Interestingly, that building was 100 per cent leased by the time we got to [completion]. The interesting thing is, every tenant that came into that building was upgrading.”
