Demand for innovative and flexible commercial office space near the Sydney CBD is driving vacancy in the fringe market down and rents up, according to the latest research from Knight Frank. 

The Sydney City Fringe Office Market Report June 2019 found the overall vacancy rate in the fringe fell to 2.8 per cent at the end of the first quarter this year, well below the 4.1 per cent vacancy rate in the CBD. 

Knight Frank Associate Director Research Katy Dean said the demand for commercial office space was rising outside the traditional CBD centre, extending beyond its southern boundaries. 

“This is being driven by above-trend population and employment growth, as well as higher business investment and new infrastructure,” she said. 

“Additionally, the continued evolution of Greater Sydney and growth of knowledge-intensive industries on the back of both technological adoption and progress is helping to elevate the status of the CBD’s southern fringe areas to a thriving economic, amenity-rich commercial office destination.” 

Sydney City Fringe Office Market Report June 2019 - At a glance

• Overall vacancy in the fringe has fallen to 2.8%, well below 4.1% in the CBD 
• Strong growth in demand has been driven by the expansion of existing businesses and the booming education sector 
• The undersupply of space is leading to surging rental growth in the fringe.

There has been a demand-led transformation in the office market from Central to Eveleigh, with that demand coming from knowledge-intensive industries including education, professional services, information, media and technology (IMT) and startup businesses, said Ms Dean. 

“Pyrmont, Ultimo and Surry Hills have been central to this transformation, mainly due to their proximity to the CBD, and remain the largest office markets in the southern fringe, with, not surprisingly, low vacancy rates. 

“However, growing demand from creative industry for fringe office space and the ongoing expansion of the education base in Ultimo has driven the expansion of other commercial office precincts including Redfern and more recently, Eveleigh on the back of Mirvac’s South Eveleigh development.” 

Ms Dean said the undersupply of space was leading to surging rental growth, with double-digit growth in most of the fringe precincts over the past year and in many cases, rental growth rates that exceed what has been achieved in the CBD recently. 

Pyrmont has seen the largest increase, with rental growth of 26 per cent seeing the gross face rent sit at $750 to $940/sq m.

This was followed by Surry Hills (21 per cent), Ultimo (18 per cent), Haymarket (17 per cent), Redfern (13 per cent), Chippendale (12 per cent) and Darlinghurst (4 per cent). 

“As at the first quarter of 2019, gross face rents for Surry Hills average $820/sq m, a 50 per cent increase since the first quarter of 2016. 

“This contrasts with Prime Sydney CBD rents which have increased by 25 per cent over the same period.

"On a net effective basis, since 2016 rents have doubled in Surry Hills to average $610/sqm.” 

Ms Dean said surging IMT sector demand, which was underpinned by the strong knowledge and education base, as well as the amenity and innovation offering within the Southern CBD, was set to reshape the future of Sydney’s office markets. 

“With the CBD so tightly held and the pent-up demand from the IMT sector, particularly for fringe locations showing no signs of abating, developments of the scale being seen at South Eveleigh or in and around Central are being welcomed by the market," he said.

“Expansion to the south certainly has the potential to accommodate increased demand by taking advantage of the availability of infill development opportunity in the area, with infill set to drive the southern CBD expansion.” 

Knight Frank Head of Office Leasing Sydney South Nick Lau said while Central to Eveleigh is at the forefront of the State Government’s urban growth plans, the competition for commercial office space on the southern fringe had been underpinned by its amenity characteristics, including the typically low-rise buildings and gentrification of underutilised or disused industrial buildings. 

“While the strong growth in demand has been driven by the expansion of existing businesses within these locations, it can also be attributed to a rise in the number of companies seeking out an environment that accommodates their culture and values, which is increasingly multi-generational.” 

Mr Lau said another driver in demand is the booming education sector, with a push from large education providers seeking space 2,000 sq m and above within the fringe boundaries. 

“The Government has made a significant push towards the revitalisation of the Central to Eveleigh area as a technology and innovation precinct, and these areas also appear to be widely suited to attract this demand, which to some extent, has been largely unfilled.” 

Similar to this: 

Adelaide office property market surges: report

Brisbane industrial land values continuing to rise - Knight Frank

South East Queensland commercial market off to a strong start, says Knight Frank