2022-09-27-莱坊-Parramatta_Office_Market_September_2022_6页_3mb

Parramatta Office Market Summary - September 2022

Core Content

Parramatta's office market is undergoing a significant transformation driven by both private and public sector investment. This has led to the city overtaking North Sydney and Macquarie Park to become the second-largest CBD in New South Wales by office stock size. The total office stock has increased by 25% over the last two years, reaching 958,018 sqm, with prime grade stock now accounting for 57% of the total stock base.

Key Market Indicators

Main Developments

• Parramatta Square: Walker Corporation has completed PSQ6 (71,000 sqm) and PSQ8 (53,000 sqm), contributing significantly to the prime stock growth. These developments have over 60% commitment rates and are occupied by major tenants such as Property NSW, Westpac, Deloitte, and Link Market Services.
• 6 Hassall Street: A development by Charter Hall and WSU, totaling 28,722 sqm, is fully completed with over 50% commitment. It is anchored by UNSW and WSU, and includes a world-class Engineering Innovation hub.
• 85 Macquarie Street: A boutique development by Holdmark Property, currently under construction, is expected to be completed by the end of 2022. It is anchored by Commonwealth Bank of Australia and will offer efficient floor plates of approximately 900 sqm.
• 150 George Street: A refurbishment project by Mintus, with 21,964 sqm, is expected to come back to market in early 2023 after CBA vacates the building.

Market Trends

• Vacancy Rates: The total vacancy rate has reached 19.3%, the highest on record, while the prime vacancy rate has increased to 20.8%, up from 11.4% a year prior. This increase presents opportunities for both new and existing tenants to upgrade or relocate.
• Face Rents: Prime face rents have increased by 2% to $600/sqm (gross $725/sqm), while secondary face rents remain steady at $477/sqm (gross $597/sqm). This is due to inflationary pressures and new supply entering the market.
• Incentives: Prime incentives have risen to 30%, and secondary incentives to 32.5%, leading to a decline in net effective rents by 2.2% and 5.3% respectively.
• Yields: Core market yields have softened slightly, with prime yields at 5.6% and secondary yields at 6.1%. A 105bps yield arbitrage exists between Parramatta and Sydney CBD, making Parramatta an attractive investment for local and offshore investors.

Investment Activity

• Recent Sales:

  • 20 Smith Street was sold for $87.2 million at a core market yield of 4.96%.
  • 140 & 150 George Street was sold for $154.5 million, with a core market yield of VP (vacant property) and an NLA of 21,964 sqm.
  • 32 Phillip Street was sold for $66 million at a core market yield of 5.34%.

• Market Characteristics:

  • Investment activity has been constrained due to the tightly held market and economic uncertainty.
  • The market is now more institutionalized, with higher funding costs affecting pricing.

Tenant Commitments

• Major Tenants:
  • Gamuda has committed to 60 Station Street for 2,646 sqm at a face rent of $595/sqm.
  • Procare Group has committed to 18 Smith Street for 286 sqm at $560/sqm.
  • CBHS Health and Pepper Money have committed to 6 Hassall Street for 1,534 sqm at $630/sqm.
  • JLL has committed to 32 Smith Street for 1,042 sqm at $660/sqm.

Outlook

• The market is expected to consolidate and absorb the current levels of supply, with the next wave of significant development anticipated by 2024.
• The increase in prime office space is likely to drive a flight to quality, with secondary market owners potentially investing in refurbishment and upgrades.
• Further yield softening is expected as the impact of higher funding costs becomes more pronounced.

Contact Information

• Research:

  • Marco Mascitelli: +61 2 9036 6656 | Marco.Mascitelli@au.knightfrank.com
  • Ben Burston: +61 2 9036 6756 | Ben.Burston@au.knightfrank.com

• Capital Markets:

  • Ben Schubert: +61 2 9036 6870 | Ben.Schubert@au.knightfrank.com
  • Paul Roberts: +61 2 9036 6872 | Paul.Roberts@au.knightfrank.com
  • Graeme Russell: +61 2 9036 6618 | Graeme.Russell@au.knightfrank.com
  • Wally Scales: +61 2 9761 1813 | Wally.Scales@au.knightfrank.com

• Valuations & Advisory:

  • Tim Barwick: +61 2 9028 1101 | Tim.Barwick@au.knightfrank.com

• Office Leasing:

  • Al Dunlop: +61 2 9036 6765 | Al.Dunlop@au.knightfrank.com
  • Jared Hills: +61 2 9761 1819 | Jared.Hills@au.knightfrank.com

Additional Information

• Knight Frank Research Reports are available at knightfrank.com/research.
• All reports are provided for general information only and should not be relied upon for decision-making.