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Flight or rejuvenation for Sydney’s ‘second CBD’: new Jones Lang LaSalle research explores the future of Parramatta’s office market

With an increased risk of flight from government tenants in ageing stock, Parramatta’s office precinct should look to regeneration 

​​Parramatta’s office sector, long known as Sydney’s second CBD, has reached a critical point with low future supply and an ageing stock profile. In this public-sector dominated office market requiring strong sustainability benchmarks, there is an increased risk of flight from existing government tenants.

Jones Lang LaSalle’s latest research paper, Parramatta – Reversing the prime-grade office slide, explores these conditions in detail. According to the research, the best and fastest way to rejuvenate the Parramatta office precinct will be through the refurbishment of secondary grade assets.

Jones Lang LaSalle’s Director, Parramatta & Metropolitan Office Leasing William Tong said that while prime-grade vacancy in Parramatta has remained tight over the last few years, it is actually symptomatic of subdued tenant activity. Many government tenants are locked into long-term lease agreements, which have kept contiguous floor space scarce. This has acted as a smoke-screen for a low-demand environment, dampened by a lack of modern supply that would attract new tenants to Parramatta.

“Parramatta has been the economic heart of Western Sydney ever since the NSW Government initiated a decentralisation plan during the 1980s. However, this recent low demand / low-supply environment has created a city with a dated stock profile; a stalled city when compared to emerging business precincts that surround it, such as Macquarie Park and Rhodes.”

Mr Tong said with new NSW Government environmental benchmarks in place for all government accommodation, Parramatta’s public sector-dominated office market needs to modernise or face the consequences in the future.

A recent revision to the NSW Government’s existing sustainability policy has given new benchmarks to achieve and maintain a NABERS rating of 4.5 stars for energy and water in all Government owned or tenanted office buildings over 1,000 sqm.

“We believe that these conditions will place increased pressure on secondary-grade office asset owners in the Parramatta CBD to upgrade their buildings to future-proof the market,” said Mr Tong.

According to the Research paper, Parramatta – Reversing the prime-grade office, Parramatta is Sydney’s largest suburban office market with 716,800 sqm of stock.

However, after a growth period in the 1990s and early 2000s, supply has been scarce, with Parramatta recording one of the lowest five-year growth rates in Australia, the report states.

According to the 2011 census, the public sector’s employment in Parramatta equated to 14.2% (or 12,996 people) of total employment in the Parramatta CBD. However, Jones Lang LaSalle believes that this number is significantly higher, with public-sector administration, accounting and other back-end staff possibly allocated to other employment sectors.

Mr Tong said that assuming government leases from the 90s and 2000s are under 10-year lease expiries, there’s currently significantly elevated flight risk for a government tenanted, secondary-grade landlord.

“We estimate that there are 31 office properties within the Parramatta CBD that house at least one NSW state government tenant. Of those, 22 buildings are considered secondary trade.

“It is critical for landlords to invest capital into their assets to improve their environmental credentials, as well as overall occupier amenity.”

Mr Tong said many assets in the Parramatta office market currently considered secondary grade could potentially be re-graded prime space with the incorporation of sustainability principles, and the achievement of appropriate Green Star or NABERS ratings.

“There are significant opportunities for commercial office owners in Parramatta to increase both the attractiveness of their assets to tenants while also increasing value as investors. We believe that this is the greatest opportunity to satisfy prime-grade tenant demand and fulfil Parramatta’s long-considered title as Sydney’s second CBD,” concluded Mr Tong. ​