Skip Ribbon Commands
Skip to main content

News release

Sydney

Barangaroo: In Perspective

The development of Barangaroo will have a positive impact on the Sydney CBD office market, encouraging a new wave of development at a time when the office market is expected to be strong enough to support the increase in supply


SYDNEY, 18 November 2010 – A white paper released by Jones Lang LaSalle Research has revealed that the proposed commercial development at Barangaroo (approximately 300,000 sqm) only has the capacity to meet 47% of the underlying demand in the Sydney CBD office market in the 2011 to 2020 timeframe.
 
The report titled, “Barangaroo: In Perspective – The next evolution of the Sydney CBD office market,” assesses the requirements of modern corporate occupiers, the proposed development at Barangaroo and the overall impact on the Sydney CBD office market.
 
Jones Lang LaSalle’s Director of Office Market Research, Andrew Ballantyne said, “The demand for space in the Sydney CBD office market from 2011 to 2020 is forecast at 635,000 sqm. The Finance & Insurance sector is a growth sector of the NSW economy and our forecast suggests it will account for 40% of the additional demand to 2020.
 
“The Sydney CBD office market, similar to the early 1980s, has limited spare capacity for this stage of the recovery. We believe the vacancy rate has peaked at 8.1% and is forecast to tighten over the next three years,” said Mr Ballantyne.
 
In contrast, previous cyclical peaks in the Sydney CBD occurred at 13.0% (mid 1970s recession), 4.3% (early 1980s recession), 22.5% (early 1990s recession) and 11.9% (post 2000 slowdown).
 
Over the past 40 years, development cycles in the Sydney CBD have occurred in periods of low vacancy and above trend rental growth.
 
Jones Lang LaSalle Research forecast vacancy will tighten to 6.3% in the Sydney CBD by 2013 and prime gross effective rents will rise by an average of 8.5% per annum from 2011 to 2013.
 
Mr Ballantyne said “Based on our current vacancy projections, the Sydney CBD will be pushing up against supply-side constraints by 2012. Therefore, Sydney is scheduled to have a development cycle starting in 2012.
 
“Limited availability of sites in the CBD core and evolving requirements of large tenants seeking space with a minimum floor plate of 2,000 sqm, determines that Barangaroo will be the location for a high proportion of the forecast completions in the 2014 to 2016 timeframe.
 
“There is a false perception that Barangaroo will result in an over-supply in the Sydney CBD office market. Based on an estimate of 2013 stock levels, Barangaroo will only account for approximately 6.0% of the existing stock levels in the Sydney CBD,” said Mr Ballantyne
 
“There is a trend, in major financial centres globally, towards large modern corporate occupiers seeking large floors, preferably a minimum of 2,000 sqm with minimal intrusions in terms of columns and core areas. A rectangle design with a side core and column free floors allows for higher occupational densities and reduced circulation space,” said Mr Ballantyne.
 
The preference shown by tenants for larger floor plates is highlighted by the breakdown of the Sydney CBD vacancy rate.
 
Total market vacancy was 8.1% in 3Q10, but for prime buildings with average floor plates in excess of 2,000 sqm was very tight at 4.8% (three-quarters of the vacant space is located in the recently completed refurbishment of 100 Market Street) and floor plates between 1,500 and 1,999 sqm vacancy was 5.4%.
 
In contrast, vacancy rates for buildings with average floor plates from 1,000 to 1,499 sqm and sub 1,000 sqm were 9.3% and 12.9% respectively.
 
Mr Ballantyne said “There is a shortage of prime stock in the Sydney CBD that fits the requirement of floor plates above 1,500 sqm. Approximately 23% of the prime grade floors in the Sydney CBD are above 1,500 sqm and only 4.7% are above the 2,000 sqm threshold.”
 
“The development of Barangaroo will have a positive impact on the Sydney CBD office market, encouraging a much needed new wave of supply to meet the requirements of modern corporate occupiers at a time when the office market is expected to be strong enough to support the increase in supply,” Mr Ballantyne concluded.