Prospects Look Good For The Cbd Market
Sydney Morning Herald
Tuesday December 12, 1989
Despite the property market downturn, a survey of Sydney office space has found that the final state of the commercial property market for 1989 is not as grim as some commentators predicted.
In its Sydney Office Market Survey for November 1989, estate agent Richard Ellis said the future for rental growth and vacancy factors appeared to be more optimistic than the overall market sentiment.
Office vacancy rates in the Sydney central business district remained at 1.2 per cent from January to July this year, the report noted. They were expected to stay below 5 per cent until 1991.
Rental growth was predicted to be about 12 to 15 per cent for 1989, then it would moderate as a result of increased supply and higher vacancies.
Record returns were achieved during 1989 in the prime CBD precinct, where there continued to be a space shortage.
Rental growth continued in 1989 but at a lower rate than the 21 per cent growth in 1988. The average growth rate over 10 years was 17 per cent.
Prime rents grew 11 per cent from January to October 1989, an annual rate of 13 per cent. As supply increases, Richard Ellis believes growth should slow to between 9 and 11 per cent by 1991.
About 215,000 sq m of new office space in the CBD is due to be finished this year, including the 44,000 sq m Gateway building in Alfred Street, the 27,000 sq m development at 135 King Street, and Telecom Plaza in Pitt Street which has a total of 26,000 sq m of office space.
An average of 264,000 sq m of office space is planned for construction from 1989 to 1993. But only 40 per cent of this space is now under construction and several projects are expected to be delayed or staggered.
The report said demand for new office space was strong throughout 1989, with a total absorption for the year of more than 200,000sqm. By October 1989, more than 60 per cent of 1989 completions had been leased or pre-committed, as had 25 per cent of the total space due for completion by 1993.
The report said 90 per cent of new space to be finished in the western corridor this year had been taken, and 54 per cent of space to be completed by 1993 had been pre-committed.
The area - which has been dubbed the central services district by Lend Lease, the developer of the $1 billion Darling Park at Darling Harbour - has undergone substantial upgrading in the past 18 months. This has triggered much interest by service-oriented tenants such as accountants.
Recent leasing deals include one involving chartered accounting firm Nelson Parkhill BDO Pty Ltd, which leased four floors in 2 Market Street for a rental of $3.5 million a year.
Another firm of accountants, Ernst & Young, leased 15 levels in the State Superannuation Board's building at 321 Kent Street for a rental of about $11 million a year.
A show of confidence in the area was apparent with Mercantile Mutual Group's $151 million purchase of a CRI development in the western corridor before construction had even begun.
Other owner-occupiers to gain property in the western corridor include Medibank and Brick Securities.
The report said that, with the property market susceptible to fluctuating interest rates, there was evidence of a slowing in investment activity.
CBD sales to August this year totalled almost $1.9 billion, as against $4 billion for the whole of last year.
On construction costs, the report said that even few of the largest Japanese life funds could afford the price of "mega-developments", and that joint ownership was becoming the sole means of equity finance for such projects.
© 1989 Sydney Morning Herald