THE Sydney office market is in the midst of a supply drought and needs around 50,000 – 60,000 sqm of space each year, just to keep up with demand.
Speaking at the Australian Property Institute’s State of Market Commercial event recently, Knight Frank’s associate director of research Alex Pham predicts Sydney’s vacancy rate will tighten to 3% over the next three years.
Pham said tenants belonging to the new economy – Technology, Advertising, Media and Information (TAMI) are driving white collar employment growth and demand for space, replacing the old economy – Finance, Insurance and Real Estate (FIRE) sector.
According to Knight Frank, TAMI and FIRE white collar employment growth tied in 2017, sitting on the upper end of the 90,000 – 100,000 jobs scale.
FIRE growth is expected climb to 100,000 jobs over the next three years and remain stable into 2025, whereas TAMI growth is projected to climb to 110,000 in three years and 120,000 beyond 2025.
One of the fastest players within the TAMI sector is co-working tenants, which has expanded by 49% p.a. over the last 10 years.
A decade ago, co-working space represented more or less around 1,000 sqm and in 2018, the footprint is in excess of 70,000 sqm.
Pham said the growth of white collar employment coupled with withdrawals of office space for residential, hotel and infrastructure projects has resulted in a supply drought.
According to Pham, 411,906 sqm of office space had been withdrawn over the past two years.
Over the next three years, there are limited new completions and the market will not see the next phase of developments coming online until the end of 2020, however it will not be enough to satisfy the pent up demand.
Pham said the gap of Sydney CBD office stock and white collar employment will continue to widen.
This is good news for landlords where the vacancy rate is forecast to fall to 3% over the next three years – significantly below the 10-year average of 7.3%, and rents will continue to climb.
According to recent data from JLL, the vacancy rate was 5.5% in the first quarter of 2018, which has led to prime gross effective rents rising by 3.9% over the quarter and by 16.3% annually as multi-national organisations in the finance, professional services and technology sectors continued their expansion.
Colliers recently advised tenants to plan ahead and begin their search for space up to three years in advance.
Between Q4 2017 and Q1 2018, 214,010 sqm of space was leased, up 32% over the quarter and 63% over the 12 months period.
Businesses looking for workspace under 1,000 sqm increased by 55%, whilst demand for 1,000-2,999 sqm increased by 15% and demand for space over 3,000 sqm increased by 18% from Q4 2017 to Q1 2018.
Colliers said occupiers looking for space of 5,000 sqm or greater should begin their search at least two to three years in advance of their lease expiry to have sufficient time to consider upcoming opportunities.
Australian Property Journal
