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  • Sydney becomes a borderless market for office tenants on the move

Sydney becomes a borderless market for office tenants on the move

Sydney | 17 October 2016
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Boundaries are blurring in the Sydney office leasing market as a lack of available stock drives a growing number of tenants to broaden their horizons.

A new CBRE market review highlights that more tenants than ever before are prepared to cross the city - from north to south and vice versa - in a market that is being driven by necessity.

CBRE Senior Director Jenine Cranston said; “There has historically been limited evidence of Sydney office tenants crossing boundaries. However, as office vacancy rates in the CBD and metropolitan markets reach all-time lows, occupiers are increasingly prepared to consider alternate locations.”

Ms Cranston noted that there were now numerous examples of Sydney CBD tenants taking space on the north shore given the current shortage of city-based options.

One of the most recent deals involves construction group Dragados relocating from 1 Alfred Street to North Sydney’s 99 Mount Street after finalising a 182.4sqm lease commitment.

Key drivers include the circa 100,000sqm of enquiry that has resulted from Sydney Metro site acquisitions and residential conversions such as 1 Alfred Street and 71 Macquarie Street.

Financial considerations - and not just a lack of stock - are also influencing tenant decision making according to CBRE.

“Strong rental growth associated with the fall in CBD vacancy rates is driving some tenants to shift location due to financial necessity,” Ms Cranston said.

“With B-grade rents at an all-time high, and in some cases pushing $1,000/sqm gross, some city tenants are being compelled to look at cheaper markets as a solution.”

Stefan Perkowski, head of CBRE’s north shore office leasing team, said the blurring of boundaries had driven a rapid turnaround in the North Sydney office market in 2016.

This had been highlighted by the benchmark rentals of $795/sqm that were being achieved in quality assets.

“In the B-grade market, we have seen face rent records consistently achieved throughout Q3 and incentives negotiated to sub 15% - a level that hasn’t been achieved since before the Global Financial Crisis,” Mr Perkowski said.

“The best results have been achieved in newly repositioned assets such as 99 Mount Street and 107 Mount Street where landlords have spent capital on refurbished lobbies, bathrooms and essential plant equipment. We are predicting that this momentum will continue in Q4, particularly in the B grade, market.”

Mr Perkowski added that savvy North Sydney landlords had also been quick to install speculative fitouts in B grade suites to meet the needs of displaced CBD tenants looking for a quick solution. 
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About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

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