Sydney’s second CBD: A closer look at Parramatta’s office market
Sydney is now home to two CBDs, including an area that may just be the fastest growing in the country: Parramatta. In the five years ending 2021, this burgeoning economy is expected to nearly double it’s growth rate from 2.4 per cent to 4.6 per cent. During the same period, the area will also experience a population increase of roughly 41,000 and double in size, a 2016 PWC report forecasted.
Research suggests that over $10billion will be invested in the area from 2016 to 2021 – it’s unquestionable that Parramatta is one of the country’s most exciting growth areas. To help you make the most of it we’ve had a closer look at Parramatta’s fast-growing CBD office market with the help of Ray White’s Between the Lines market research.
Supply and net absorption both positive
Sydney is now home to two CBDs, including an area that may just be the fasted growing in the country: Parramatta.
Over 200,000sqm in commercial office space is in the pipeline for Parramatta CBD, an addition spurred on by increasing demand that has been come about thanks to strong employment growth. These conditions explain why 26,000sqm has been added to the city’s office market (and already fully tenanted) over the six months ending January 2017.
Traditionally the area experiences negative net supply thanks to a popular trend of removing older office stock from the market and redeveloping it into residential accommodation. This phenomenon reduced stock by close to 30,000sqm over the six months ending July 2016, but the trend appears to have fully reversed recently.
New stock over the period included 26,000sqm in the Charter Hall’s Parramatta Square Stage one fully leased to the University of Western Sydney, as well as 25,000sqm of office space at 105 Phillip Street and 35,000sqm of space in Westfield Parramatta.
A-grade office space record low vacancies
Vacancy rates in Parramatta CBD’s A-grade stock sit at an absurdly low 0 per cent.
Vacancy rates in Parramatta CBD’s A-grade stock sit at an absurdly low 0 per cent, showing how hotly demanded high quality space is in the city. This means that those looking to lease high quality space will encounter an incredibly competitive environment here in Parramatta.
Seek professional advice from a real estate agent you trust and finding your way into a quality lease can still be possible. The average for all office stock in the city is also incredibly low at only 4.3 per cent, representing only 30,582sqm of vacant space and only 0.1 per cent vacant sub lease stock.
B and C grade stock are at more reasonable vacancy levels with 6.2 per cent and 13.2 per cent respectively, although they have both declined considerably over the last year. These record low vacancies mean that now is a brilliant time to be an investor and a landlord in Parramatta – or to make the most of the opportunities here if you haven’t already.
Average rents trend sharply upwards
Growth over the year ending January has been much the same at 3.92 per cent, bringing the current average to $562/sqm.
On the back of red hot demand and record low vacancies, average rents in Parramatta have trended upward since at least 2003. This growth has been particularly strong over the last four years with Prime gross face rents averaging 4.02 per cent increases a year cent during that period.
Growth over the year ending January has been much the same at 3.92 per cent, bringing the current average to $562/sqm. This trend is expected to continue until least 2017, as no new stock will come to market during that time to ease the current strain on supply.
Despite the fact that this is very much a landlord’s market, incentives remain surprisingly high. Prime lease deals attract incentives of roughly 20 per cent over a five year period, while B and C grade space can attract as much as 25 per cent.
Investment yields continue their decreases
Considering the current state of the market here, it’s no surprise that investment yields have been steadily compressing since 2013. Parramatta’s location, it’s increasing population and it’s steady economic growth all mark it as an attractive area for investors – pushing capital values up and rental yields down.
Prime investment yields currently average at 6.75 per cent, while secondary assets sit slightly higher at 7.5 per cent. As you’d expect it’s possible to find higher yields with a strong negotiator on your side and an extensive knowledge of what’s available on the market currently.
The office market in Parramatta is showing some of the lowest vacancy rates of any area in the country. This underscores the rock solid demand in the area, and hints that in future this burgeoning market is only going to improve and grow further.