JLL’s head office on George Street in the Midtown precinct of the Sydney CBD offers a prime vantage point to view the transformation that is taking place along the Western side of the city. The new towers at the Barangaroo development (International Towers Sydney) are changing the Western city skyline with 3Q15 marking the partial completion of the first tower adding 59,000 sqm to stock.  The traditional epicentre of the City has shifted from the North towards the Midtown precinct and is now continuing to spread west of the CBD Core.

The Sydney CBD office market comprises four precincts. The Core precinct has been the traditional commercial hub, contributing around 50% of total Sydney CBD office stock when JLL started monitoring Sydney stock by precinct in 1994. However, since 2004 the proportion of stock located in the Core has declined to 43% as stock across the Midtown and Western Corridor precincts expanded by 33% and 46% respectively over the past decade. With the majority of the Barangaroo development still to complete, the Western Corridor will become Sydney’s second largest precinct, comprising 27% of stock by the end of 2019.

The new ranking of the precincts is reflected also on the demand side, with only 17,400 sqm of net absorption recorded in the Core precinct since 1Q05.  This is overshadowed by the Western Corridor and Midtown precincts, both of which recorded net absorption in excess of 250,000 sqm over the same period.  What has this meant for rental growth across the precincts? Over the last 10-years, average annual prime gross effective rental growth has been led by the Midtown precinct (3.7%), followed by the Western Corridor (3.0%), the Core (2.5%) and the South (2.2%).  The Core still commands the highest average rents, explained by the high concentration of premium grade stock.  However, the gap between rents achieved in the Core and those achieved in Midtown and Western Corridor has narrowed over time.  With vacancy levels of below 10% since 1Q14 across both the Midtown and Western Corridor, further rental growth within these precincts may see the gap narrow further.

Source: JLL Research

Recent announcements by the State Government for further investment into the city’s infrastructure will see a metro station located at Barangaroo directly linking the Western Corridor to sub markets such as North Sydney and Chatswood along the Northern rail corridor.  It will also see the Western side of the City connect directly to the Core precinct at Martin Place and the South precinct through to Central station, before continuing West towards the emerging hubs of Bankstown and Liverpool.  New transport infrastructure, taken together with the sharp rise in the Sydney CBD residential population all add to the changing ranking of Sydney’s precincts. Investors, tenants and landlords with a long term perspective in mind need to take a strategic look at the changing face of the Sydney CBD.

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