Sydney, a challenging market to find project spaceApril 1, 2019 / By
The recent Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry may lead to the establishment of separate project teams to work on compliance issues. This establishment of new teams would potentially lead to demand for short-term project space in the Sydney CBD.
For an established world city, the Sydney CBD office market has one of the lowest vacancy rates in the world. With many businesses in expansion mode, the demand for project space on shorter lease terms tends to increase.
Project space, as the name suggests, is typically a short-term requirement which requires the mobilisation of a specific team to accommodate a large internal or external project. Projects typically run from six months to over three years, depending on the scope of the project. Historically, property development, infrastructure and technology companies are the main users of such space. New South Wales is in the midst of a record infrastructure spend and the pre-construction phase of major infrastructure projects has stimulated new demand for project space.
The short-term demand for project space will also be supplemented by the upcoming Federal and NSW State elections. The Australian Electoral Commission (AEC) has been seeking for project space related to the Federal Election.
The challenge for organisations seeking short-term project space is the tight Sydney CBD leasing market. Vacancy is at 4.1% and expected to move into the 3% territory over 2019. The next development cycle has been stretched out with 60 Martin Place scheduled to reach practical completion in 2019, Wynyard Place in 2020 and Quay Quarter Tower in late 2021 or early 2022. However, businesses might not be able to place their project teams into those premium buildings due to budget constraints.
On the other side of the leasing ledger, landlords of existing buildings are reluctant to take short-term deals (ie. an 18-month term) as they try to avoid putting space onto the market when the next supply cycle is approaching.
Project space can often be found in the sub-lease market. However, sub-lease availability in the Sydney CBD is just 18,260 sqm, equating to 0.36% of total stock. The current rate of sub-lease availability is well below the 10-year average of 1.0% of total stock.
An alternative solution for project space is to consider options in the flexible space market. WeWork, JustCo and Hub Australia have all expanded their footprint in Sydney and provide a range of options based on location, size and price. While the flexible space market is an alternative, anecdotal evidence suggests these spaces have high levels of occupancy and the number of options to accommodate a large project space would be limited.
The outlook for organisations seeking project space in the Sydney CBD and broader Sydney metropolitan office markets will be challenging. While the activation of new projects is led by business requirements, we would strongly advise that organisations with a potential project space requirement engage with the market early to ensure they can find the space required.
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