Sydney’s largest commercial market outside the CBD, the Parramatta office precinct continues to grow, with a positive long-term outlook.
While this market was hampered by COVID-19, with some tenants reducing their footprints, coupled with a strong supply pipeline, Ray White Commercial Western Sydney managing director Peter Vines said this market remained among the most active in Sydney, recording 20,523sqm of absorption in the past 12 months.
“The locational advantages of Parramatta CBD have not gone away, with rents being half that of the CBD, plus the ongoing investment into infrastructure in the region is improving its accessibility and attractiveness for growing and new businesses,” Mr Vines said.
“The current roadblock is the changing face of the office workplace which will continue to evolve over time.
“The confidence in this office market is highlighted by the high institutional investment. While this has slowed over the last few years it is anticipated to rebound, particularly as rental growth potential emerges and yields become more aligned to historical rates.”
Mr Vines said the supply situation in Parramatta would take some time to play through.
“While highly anticipated major completions, including Parramatta Square, are finalised, we will continue to see smaller new development trickle into the marketplace over the next 12 months,” he said.
“Parramatta Square has fundamentally and positively changed the makeup of Parramatta’s DNA attracting many government departments and major A-grade commercial tenancies.
This will lead to demand for secondary space from groups whose businesses feed off these major users. It will also encourage a greater talent pool to Parramatta as amenity continues to improve and previous stereotypes are dispelled.
“The bigger story for Parramatta being the churn of refurbishment space expected to exit and re-enter the market as tenants vacate their current accommodation.”
This year Parramatta CBD will see the re-entry of 150 George Street, bringing 21,964sqm of refurbished space, together with the new 8,899sqm at 97 Macquarie Street with partial pre-commitment.
“As tenancies vacate properties such as Jessie Street Centre, Octagon, and Lang Centre we will see greater stock exit the market, these greater withdrawals with subsequent re-entry 12-18 months later will prolong the high vacancy environment in which Parramatta finds itself,” Mr Vines said.
“This is the likely scenario beyond our 2.5-year forecast period with high levels of withdrawals continuing as assets take this time to refurbish to a high standard in order to compete with the recently completed A-grade stock seen across Parramatta CBD.”
He said the supply pipeline for the Parramatta office market had been, and would continue to be, problematic over the short to medium term thanks in part to changing market conditions brought on by COVID-19.
“Many of these changes in supply will be dictated by the fluctuations in demand for office accommodation,” Mr Vines said.
“Over the last six months we have seen little supply additions, however, the high absorption of space into recently completed office stock is helping the overall vacancy situation.
“Looking ahead, we will see supply very slow to progress if not already under construction; however, the exit of stock for refurbishment will aid in keeping occupied stock levels more favourable.
“This market will grapple with the exit of tenants across the city and into other office markets pressuring absorption into the negative.
“This will keep vacancy levels at a prolonged high rate in the high teens over the next three years before some normalised tenant demand returns.”
Despite the increase in supply, total Parramatta vacancies have fallen this period to 18.1 per cent. However, the current cycle has seen vacancies peak beyond any other period for Parramatta.
“Over the next few years, we expect to see the flight to quality continue to become clear, with A-grade vacancies falling this period to 18 per cent after eclipsing 20 per cent last year,” Mr Vines said.
“Affordability will continue to be at play across the smaller C-grade spaces where vacancy has reduced to 14 per cent.”
In 2022 there was over $240 million transacted across the Parramatta CBD office market down from close to $1 billion which transacted in 2019, prior to the pandemic when vacancies were historically low, and rents were quickly rising.