The need for greater financial caution in the wake of COVID-19 has heightened the appeal of cost-effective markets out of the Sydney CBD that maintain a strong offering of prime grade stock, JLL says.

According to JLL Research, vacancy in Parramatta for the first quarter of this year was recorded at 4.1 per cent - the second-lowest of the 19 office markets JLL Research tracks in Australia.

At the same time, prime vacancy was recorded at 0.9 per cent in the first quarter - the lowest prime grade vacancy rate of the JLL-monitored office markets in Australia.

At a glance: 

• Research from JLL has shown the growing popularity of Sydney's 'back of office' markets in the current climate.
• The firm's Australia National Office Market Overview 1Q20 showed vacancy in Parramatta for the first quarter of this year was recorded at 4.1 per cent- the second-lowest of the 19 office markets JLL Research tracks in Australia.
• The report also shows that 78,000 square metres of prime grade office buildings are being delivered in North Sydney throughout 2020, equating to nearly 10 per cent of the total office stock in the market.

JLL’s Western Sydney’s Senior Leasing Director, Ben Lalic said 'back of office' markets like Parramatta do well in times of downturn not just because office space is cheaper, but because there becomes an economic case for job reductions and this, in turn, creates vacancy in the back of office market.

“In this current environment, it is logical for businesses to sublease or relinquish their CBD space and shift their workers into the ‘back of office’ precincts where rents for A-Grade buildings in Parramatta are approximately 50 percent less than A-Grade CBD stock,” he said. 

“Right now, real estate is a cost and organisations engaging in cost reduction measures will seek to re-align their space requirements with future headcount expectations.

Mr Lalic noted that lower rents were not the only factor pulling businesses out to these markets. 

“Moving forward, companies are looking for buildings that are conveniently accessible for their employees. Parramatta has really cemented its status as a second central business district with amenity for staff now in abundance as well as being very accessible by major public transport.” 

An artist's impression of the Macquarie Park Glasshouse development. Source: Charter Hall 

“Having all the right foundations for major public and private sector users such as the NSW Government, Westpac and NAB and being offered at a fraction of Sydney CBD rents, the precinct will benefit from companies looking to reduce cost while still being able to provide the necessities for staff." 

Across the bridge in North Sydney, vacancy rose to of 8.5 per cent over 1Q 2020 - a trend that was attributed to the addition and completion of new development builds in the back half of 2019. 

Research from JLL indicates 78,000 square metres of prime grade office buildings are being delivered in North Sydney throughout 2020, equating to nearly 10 per cent of the total office stock in the market.

These new developments have already received extensive pre-commitment by organisations such as SAP, Nine, Microsoft and oOh!Media.

In Macquarie Park, approximately 50,000sqm of new office stock will be delivered over 2020, with 34,947 sqm having already completed at the NSW Government-tenanted ‘Glasshouse’ building at 45-61 Waterloo Road. 

JLL’s Head of Northern Sydney, Paul Lynch said development activity had been thriving across Northern Sydney, particularly in the North Sydney and Macquarie Park office markets where it showed no sign of slowing.

“Public sector decentralisation activity into the major metropolitan office markets will continue to drive demand moving forward," he said.

"As well, demand will be supported by organisations within the healthcare, education and technology sectors given the ongoing presence of Macquarie University within the market."

Click here to download JLL's Australia National Office Market Overview 1Q20.

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