The current situation in the Sydney CBD office market is a contrast with the rest of Australia. Sydney qualifies as an alpha+ city by the Globalisation and World Cities (GaWC) study, which classifies alpha+ cities as a highly integrated city filling advanced service needs for the region. As a global city, Sydney has a higher proportion of multinational occupiers and follows global rather than domestic cycles. To illustrate this, JLL has tracked the relationship between the US economy and the Sydney CBD net absorption figure over the past 30 years. The growth rate of the US economy has more explanatory power for Sydney’s net absorption than either the Australian economy or NSW Gross State Product.

Not only does the Sydney CBD demand profile follow a US-lead path; it also mirrors the current vacancy profile in Manhattan. The Sydney CBD has a tighter secondary vacancy rate of 8.5% compared to its A grade and premium counterparts, much like the Manhattan office market. A number of factors contribute to this apparent anomaly. With the premium grade office market in the Sydney CBD dominated by those tenants most susceptible to destabilisation in the financial sector, the Global Financial Crisis (GFC) in 2008 lead to the major tenants in the Sydney CBD – multinational occupiers – consolidating.

Similarly in Manhattan, the 2008 Global Financial Crisis affected most visibly the financial services sector, which, along with the legal sector, has not returned to pre-2008 levels. These industries are significant occupiers within the Midtown and Downtown precincts, with little presence in Midtown South. The High-Tech sector, which is highly concentrated in Midtown South has had a solid recovery since the downturn in 2008 and is now performing better than pre- GFC levels. As at Q1/2014, Midtown Trophy (whereby Trophy class indicates rents above $100 per square foot) vacancy was at 10.4% with aggregate Class A vacancy at 12.1%. Meanwhile Midtown Class B currently sits in single digits at 9.7%. Downtown Class A vacancy is also high at 14.8% while Downtown Trophy is at 22.4%. Again, Class B is significantly lower at 10.0%.

This similarity between Trophy and Premium grade vacancy in Manhattan and Sydney reflects how linked the two cities are. Contraction and consolidation from international financial services firms and other multinationals who comprise a high proportion of tenants in this grade of offices, has led to the synchronised increase in vacancy across these two markets. Manhattan differs from Sydney in that it has a high concentration of technology tenants in Midtown South, making up 44.3% of the tenant profile, and holding vacancy at 6.9%. Perhaps Sydney will follow suit and see an influx of high-tech occupiers in the near future? With LinkedIn looking to relocate and expand into approximately 4,000 sqm at 1 Martin Place in the centre of Sydney as an indicator, it may happen.

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