SYDNEY PROPERTY MARKET OVERVIEW - 1group.com.au - 1Group Property Advisory
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
PROPERTY MARKET OVERVIEW SYDNEY 1group.com.au
FROM THE DIRECTORS The Sydney residential property market remains the strongest overall in the country, with strong residual growth in both houses and units and the highest median house values of any market in Australia. After several years of slow or negative growth, the Sydney market grew strongly in 2020. While market values have declined slightly in the first six months of 2020 due to the COVID-19 pandemic induced economic recession, overall residential property values have still increased by 13.3 per cent compared to June 2019. Owner occupied driven purchasers out in force, and anecdotal evidence on the ground is showing us reserve prices being blown out by 15-25% in some areas . The office and industrial sectors have also boomed in the past year. However, in common with the rest of the country, the retail asset market has declined markedly in recent years and has suffered more strongly than any other sector since the outbreak of COVID-19. However in a perfect example of markets within markets tightly held retail strips particularly in affluent communities are attracting significant premiums. We believe any negative impacts on the residential market brought on by COVID-19 will most likely be felt in high density housing and mortgage belt communities. The office market also faces uncertainty over the coming years given the shift towards off site work which has been embraced by many albeit without choice. Key research findings: • The NSW economy is the largest and strongest performing economy in the country. The Gross State Product (GSP) of NSW increased by 2.09 per cent in the financial year ended June 2019, with a total GSP of $595.7 billion per annum, up nearly $12.2 billion on the previous year. • The Sydney metro region accounted for 77 per cent of NSW’s economic performance, with a total Gross Regional Product (GRP) growth rate of 2.6 per cent for the year ended June 2019 and a total GRP of $461.4 billion, up $18.3 billion on the previous year. The City of Sydney local government area accounted for a significant 28.2 per cent of the metro area’s GRP, with an annual growth rate of 4 per cent and a total GRP of $130.1 billion, up nearly $4.5 billion on the previous year. • Figures from the Australian Bureau of Statistics (ABS) show that NSW’s State Final Demand grew by 1.6 per cent in the year to December 2019, a year on year decline of 0.2 per cent. However, the State Final Demand contracted by 1.6 per cent in the first quarter of March 2020 as the economic impacts of the COVID-19 pandemic started to bite. This result was on the back of a reduction in household consumption (down 1.6 per cent in the March quarter) and falls in new building construction (down 11.4 per cent), new engineering construction (down 12 per cent) and new dwelling investment (down 4.5 per cent). The reductions were partly offset by a 1.8 per cent increase in government consumption as a result of increased expenditure due to the bushfires and COVID-19 pandemic. 2 Sydney Market Update
FROM THE DIRECTORS (cont.)
• The COVID-19 pandemic and subsequent lock-down has already resulted in
significant increase in the unemployment rate. In January 2020, unemployment in
NSW stood at 4.5 per cent, a modest increase on the 3.9 per cent rate recorded
a year previously. However, the rate increased markedly in the space of just four
months to stand at 6.4 per cent in May 2020, with the likelihood that this will
continue to increase in coming months.
• The COVID-19 pandemic and subsequent lock-down means the economy will
likely experience subdued growth and significantly increased unemployment
during 2020. The economic recession resulting from the COVID-19 pandemic has
already impacted the rental market and short term property sales, but the long
term effect of the pandemic induced recession on the property market will
depend on how quickly the Australian economy takes to recover.
• While the COVID-19 induced economic recession is causing economic and
social stress, Sydney’s property market remains in strong health overall. Thanks
to the combination of massive infrastructure spending, low interest rates,
historically strong property growth rates and the largest and most diverse state
and city economy in Australia, Sydney’s property market is well placed to recover
quickly once the COVID-19 pandemic induced recession ends.
Tal Eloss
Director
1Group Property Advisory
Julian Muldoon
Director
1Group Property Advisory
4 Sydney Market Update
KEY STATS
2019/20 2018/29 Change
NSW Gross State Product (growth 2.09% 2.51% -0.42%
rate) (Jun 30, 2019) (Jun 30, 2018)
NSW Gross State Product (total $595.7b $583.5b +$12.2b
value - billions) (Jun 30, 2019) (Jun 30, 2018)
Sydney Metro Gross Regional 2.6% 3.1% -0.5%
Product (growth rate) (Jun 30, 2019) (Jun 30, 2019)
Sydney Metro Gross Regional $461.4b $443.1b +18.3b
Product (total value – billions) (Jun 30, 2019) (Jun 30, 2018)
City of Sydney Gross Regional 3.56% 4.44% -0.88%
Product (growth rate) (Jun 30, 2019) (Jun 30, 2018)
City of Sydney Gross Regional $130.1b $125.6b +$4.5b
Product (total value - billion)
Sydney Population 4,926,000 4,859,000 +1.38%
Unemployment 6.4% 4.5% +1.9%
(May 2020) (May 2019)
4.5% (Jan 3.9% (Jan 2019) +0.6%
2020)
NSW State Final Demand (total $157.6b $153b +$4.6b
value) (Dec 2019) (Dec 2018)
$155.6b $154.5b +$1.1b
(Mar 2020) (Mar 2019)
NSW State Final Demand 1.6% 1.8% -0.2%
(percentage change) (Dec 2019) (Dec 2018)
-1.5% 1.6%
(March 2020) (Dec 2019) -1.1%
6 Sydney Market Update
KEY POINTS 1. Sydney continues to have the country’s strongest housing and unit markets, with strong residuals, the highest median prices in the country and 13.3 per cent annual growth for the twelve months to June 2020 despite recent modest declines due to the COVID-19 pandemic. 2. Sydney experienced a population growth of 1.3 per cent in the year to December 2019. 3. The NSW State Final Demand grew by 1.6 per cent to December 2019, but experienced a 1.5 per cent contraction in the March 2020 quarter due to the early effects of the COVID-19 pandemic induced economic recession. 4. The total value of the NSW State Demand was $157.6 billion in December 2019, but had reduced to $155.6 billion as the initial effects of COVID-19 shut downs on the economy were felt. 5. Gross State Product (GSP) of NSW increased by 2.09 per cent in the financial year ended June 2019, with a total GSP of $595.7 billion per annum, up $12.2 billion on the previous year. 6. The City of Sydney itself had a Gross Regional Product (GRP) rate of 3.56 per cent for the year ended June 2019, with a total GRP of $130.1 billion, up nearly $4.5 billion on the previous year. 7. However a combination of the bushfires at the start of 2020 and the COVID-19 pandemic and subsequent lock-down means the economy is experiencing more subdued growth and significantly increased unemployment during 2020. Sources: ABS, Macrotrends, NSW Treasury, populationstat.com, SGS Economics 7 Sydney Market Update
MAJOR PROJECTS
The NSW State Government and the Australian Federal Government are investing
$79.3 billion in infrastructure projects, including:
1. A total of $31.6 billion to fund the Sydney Metro. Sydney Metro is Australia’s
largest public transport infrastructure project and will include four metro lines.
The first two lines of the Sydney Metro are due to be completed by 2024 and will
include 31 metro stations and 66 kilometres of new metro rail lines linking
Tallawong in the Northwest with Bankstown in the Southwest.
a) The first line was the $8.3 billion Sydney Metro North West, comprising 13
stations along a 36 kilometre line between Tallawong and Chatswood. The
existing Epping to Chatswood line was upgraded to metro standards. This
line was opened in July 2019.
b) The second line will be the $16.8 billion Sydney Metro City and Southwest
which will link Chatswood with Sydenham and include an upgrade of the
existing Sydenham to Bankstown line to metro standards. This line is due to
be completed by 2024.
c) The third line will be the $3.5 billion Sydney Greater West Metro which will
connect Western Sydney Aerotroplois and St Marys. The 23 kilometre long
line will include a station at the Western Sydney International Airport and will
connect with the main line at St Marys. Construction is underway and due to
be completed by 2026 in time for the opening of the new Western Sydney
International Airport.
d) The $3 billion Sydney Metro West line will connect the Parramatta and
Sydney CBDs, and will include stops at Parramatta, Westmead, Sydney
Olympic Park, North Strathfield, North Burwood, Five Dock, Bays Precinct
and the Sydney CBD. This line is due to be completed by 2030.
Sources: Planning Portal NS
8 Sydney Market Update
MAJOR PROJECTS (cont)
2. At least $20 billion for construction of Western Sydney Aerotropolis. This will
be an 11,200 hectare city based around the Western Sydney International
Airport. The Aerotropolis will establish a high-skill jobs hub with a mixture of
office and industrial space supporting the aerospace, defence,
manufacturing, healthcare, freight and logistics, agribusiness, education
and research industries and when completed will generate around 200,000
new jobs. The city will include retail facilities and a number of residences will
also be constructed. Early Aerotropolis sites will be available for
development in 2023.
3. A total of $16 billion to fund WestConnex motorway. When completed, this
will be a 33 kilometre motorway linking the M4 motorway in Western Sydney
with the M5 motorway in south-western Sydney with links to the CBD and
Port Botany and Sydney Airport. Constructed in three stages.
a) The first stage was extending the M4 from Homebush to Haberfield and
was opened in 2019.
b) Second stage was construction of the M8 motorway between the M5
interchange at Kingsgrove and the St Peters interchange and was
completed in mid 2020.
c) Third stage is construction of a link between the M8 at St Peters and the
M4 at Haberfield, with construction underway and due to be completed
by 2023.
The new motorway will include approximately 19 kilometres of tunnels. The
WestConnex will include provision to link to the future M6 motorway
extension to Southern Sydney and to extend the M8 motorway to link to the
proposed West Harbour tunnel and the Northern Beaches.
9 Sydney Market Update
MAJOR PROJECTS (cont)
4. A total of $5.3 billion for the construction of Western Sydney International
(Nancy-Bird Walton) Airport. Construction is now underway on Sydney’s long
planned second international airport. The terminal will be designed by Zara
Hadid Architects and Cox Architecture and is set to be open for domestic,
international and freight flights by 2026. The initial earthworks are being carried
out by Lendlease and CPB Contractors.
5. A total of $2.4 billion for construction of the Parramatta Light Rail. This network
will be delivered in two stages and comprise a total of 22 kilometres of light rail
linking Westmead and Carlingwood and Parramatta and Sydney Olympic Park.
a) Stage one of the Parramatta Light Rail will be a 12 kilometre route
connecting Westmead with Carlingford and run via the Parramatta CBD.
Construction is due to be completed by 2023.
b) The proposed stage two of the Parramatta Light Rail will be a 10 kilometre
route connecting the Parramatta CBD to Ermington, Melrose Park,
Wentworth Point and Sydney Olympic Park.
6. A total of $1.4 billion for construction of the M12 Motorway, which will provide an
east-west link between the M7 Motorway and The Northern Road.
7. A total of $1.1 billion for the proposed relocation of the Powerhouse Museum
from Ultimo to Parramatta.
8. A total of $750 million to construct a new Sydney Fish Market.
9. A total of $735 million for the redevelopment of the Sydney Football Stadium.
10 Sydney Market UpdateMAJOR PROJECTS (cont)
There are also a number of significant private sector developments in the pipeline,
including:
1. The Barangaroo South complex comprising the $2.2 billion One Barangaroo
development and $750 million One Sydney Harbour development.
a) One Barangaroo, also known as the Crown Sydney development, will comprise a
75-storey casino, hotel and residential complex with 323 hotel rooms, 66 luxury
apartments and 25 hotel villas. The tower has reached full height and is now the
tallest building in Sydney.
b) One Sydney Harbour will comprise three high rise residential towers of 29, 59
and 71 storeys with a total of 775 apartments.
2. The proposed $692 million 505 George Street development. This will comprise an
80-storey residential tower sitting on top of the Event cinemas complex. The tower
will be the tallest building in Sydney when completed.
11 Sydney Market UpdateMAJOR PROJECTS (cont)
3. The $700 million 8 Parramatta Square development, a 50-storey office building
with 124,000 sqm office space which will become Australia’s largest office
building. Due to be completed in April 2022.
4. The $660 million Quay Quarter tower. To be a 50-storey office tower with 90,000
sqm office space.
5. The $1.5 billion Salesforce tower, a 55-storey office tower with about 56,000 sqm
office space. To be the tallest office building in the Sydney CBD when completed
in 2022.
6. The $550 million One Circular Quay development. To be a twin-tower complex
comprising a 28-storey Wanda hotel with 182 hotel rooms and a 59-storey
apartment tower with 184 residential apartments.
7. The 39 Martin Place development. To comprise a 29-storey 30,000 sqm office
tower built above the Martin Place Metro Station.
8. The $650 million Cockle Wharf Bay development. The proposed redevelopment of
the Cockle Bay precinct on the edge of Darling Harbour will include a 183-metre
office tower with 75,000 sqm office space, a retail component with 15,000 sqm,
and an elevated park.
9. The $1.2 billion 1 Denison Street North Sydney development. To be a 44-storey
office tower with 65,705 sqm office space. Due to be completed by the end of
2020.
10. The $700 million Greenland Centre development. To be a 70-storey residential
tower with 360 apartments.
Sources: Sources: Planning Portal NSW, www.urbandeveloper.com.au
12 Sydney Market UpdateRESIDENTIAL Prior to the COVID-19 pandemic hitting Australia in March 2020, property commentators were tipping that the Sydney residential market would perform strongly in 2020, with some commentators predicting prices would increase by 5 to 12 per cent. However, the second quarter of 2020 shows the COVID-19 pandemic is having an effect on the market, with slightly lower growth rates, fewer listings and higher vacancy rates. Thus the predictions of 5-10 per cent growth are unlikely to be achieved. However, assuming no second wave of COVID-19 community outbreak occurs in Sydney, there is every reason to believe that the Sydney market will remain stable, thanks in part to record low interest rates and emergency measures by banks to allow borrowers to put mortgages on hold. In the thirty years since 1990, Sydney’s residential markets have seen three property booms (1999-2004, 2010 and 2013-2017) and four downturns (2005-2006, 2008-2009, 2011-12 and 2017-2019). The peak of the market in 2017 saw a median house price of $1,075,000, which had declined to $900,000 by September 2018. Median house prices have since improved to $1,010,426 at the end of June 2020, fractionally below the 2017 peak. The period of negative growth was likely fueled by an increased supply of new dwellings since 2013. Between 2013 and 2018, approvals for new buildings were at record highs, peaking at 60,000 approvals in 2016. New building approvals have since reduced, with 47,411 new dwellings approved in the twelve months to June 2020. The reduction in the number of approvals should see supply slowing in the next few years. However, there is still a large amount of construction underway as properties approved in past years are completed. According to BIS Oxford Economics new dwelling completions exceeded 200,000 per annum each year between 2014 and 2019. Following a sustained period of negative growth since the previous peak in July 2017, the Sydney market experienced a strong recovery in 2019 and the first quarter of 2020, with the median dwelling price growing by 13 per cent to $882,849 by March 2020. Thanks to the effects of COVID-19 on the real estate market, values declined slightly in the second quarter of 2020, with the median dwelling value declining by 0.8 per cent to $875,749. However, this is still a 13.3 per cent increase on values in June 2019. The growth through to March 2020 was the quickest recovery by the Sydney market in the past three decades, with housing regaining two-thirds of the value lost in the downturn after the 2017 peak. 13 Sydney Market Update
RESIDENTIAL Sydney’s housing market saw median house prices grow by 14.5 per cent to $1,020,849 in the twelve months to March 2020, before the effects of the COVID-19 pandemic saw an easing in values of 1.1 per cent to $1,010,426 by the end of June 2020. However, this still represents 14.4 per cent year on year growth. Sydney’s apartment market also recorded strong growth in 2019 and the first quarter of 2020, with an average median apartment value growing by 9.8 per cent to $770,469. This was followed by a 0.1 per cent decline to $761,792 in the June quarter, but this still leaves Sydney’s apartment values at 10.6 per cent higher year on year. The strongest performing suburbs in the Sydney metro area during 2019 for houses were Vaucluse with 19.9 per cent growth rate, followed by Carlingford (15.4 per cent), Loftus/Yarrawarrah (15.2 per cent), Sydenham/Tempe/St Peters (14.5 per cent) and Woronora Heights (13.1 per cent). The weakest performing suburb for houses was Cabramatta with minus 4.5 per cent growth. However, it was the apartment markets in Ryde (-15.8 per cent), Homebush West (-9.3 per cent) and Mascot (-4.6 per cent) that recorded the worst growth in the Sydney metro area during 2019. Despite significant new dwelling supply, rental vacancy rates across the Sydney metro area have remained low in the last few years, with vacancy rates in fact falling from 3.2 per cent in May 2019 to just 2.5 per cent in February 2020. However, rates have since increased by 1.3 per cent to 3.8 per cent by June 2020 due to the effects of COVID-19. Some inner suburbs have been hit particularly hard since February, with the Sydney CBD experiencing vacancy rates of 14.8 per cent by May 2020, compared with just 4.2 per cent in February 2020. These figures are a result of a major exodus of tenants – mostly international students and those on short term visas – following the outbreak of COVID-19. The short-term rental market has also suffered significant vacancy rates due to the border closures and the resulting lack of tourists and others on short term visas. As a result, many landlords have listed these properties for long term rental, further exacerbating the supply of rental accommodation. Weekly median rental rates across the Sydney metro area were declining even before the COVID-19 pandemic. Weekly median rates for a house were $699 in January 2020, a decline of 1.55 per cent on January 2019. However, prices have declined further since January, with median weekly rates down a further 8.87 per cent to $637 per week. 15 Sydney Market Update
RESIDENTIAL
The impacts of the COVID-19 pandemic on the market can be seen in a reduction in
new listings to about 21 per cent lower than what they normally would be at this time
of the year. This reduction in supply levels is actually likely to help protect housing
values until confidence returns to the market. Market values are also likely to be
cushioned by record low interest rates and mortgage relief measures, both of which
are likely to reduce the likelihood of significant forced mortgagee sales as the
economic recession takes hold.
Auction clearance rates also show the effect of COVID-19 on the market. During
February, just prior to the COVID-19 lockdown in Sydney, the average auction
clearance rate was 78 per cent. Clearance rates dropped to just 36 per cent in April
during the height of the lockdown, before averaging 63 to 65 per cent from May
through to August. Auction clearance rates for May and June were comparable to
the same period in 2019, and are around 10 per cent below for July and August.
This shows that while auction clearance rates have picked up from the low point of
April, it still hasn’t reached the high clearance rates of February and March.
100%
80%
60%
2020
40%
2019
20%
0%
FEB MAR APRIL MAY JUN JUL AUG
Auction clearance rates 2019/2020 (source:Domain)
The fundamentals for the Sydney residential market remain strong, although the
COVID-19 pandemic may result in a modest decline in market values by the end of
2020. Thanks to strong infrastructure spending, declining dwelling approvals, record
low interest rates, mortgage relief measures and historical strength, the Sydney
market is well placed to avoid a severe market decline, assuming there are no
further large COVID-19 outbreaks or lockdowns of the type affecting the Melbourne
market. How far the residential market drops and how long the downturn will last
depends on the severity of the recession and how long it takes for the Australian
economy to return to a semblance of normality.
17 Sydney Market UpdateKEY STATS
Metric 2020 2019 Change
Median Dwelling Prices $875,749 (Jun 2020) $759,274 (Jun 2019) +13.3%
House Prices $1,010,426 (Jun 2020) $863,914 (Jun 2019 +14.5%
Apartment Prices $761,791 (Jun 2020) $681,041(Jun 2019) +10.6%
Median Weekly Rental – $699 (Jan 2020) $710 (Jan 2019) -1.55%
$637 (Jul 2020) $681 (Jul 2019) -6.46%
houses
Median Weekly Rental – $510 (Jan 2020) $523 (Jan 2019) -2.49%
$469 (Jul 2020) $503 (Jul 2019) -6.76%
Units
Vacancy Rate 2.5% (Feb 2020) 3.2% (May 2019) -0.7%
3.8% (Jun 2020) 3.5% (Jun 2019) +0.3%
New Dwelling Approvals 47,411 (Jun 2020) 57,597 (Jun 2019) -4.7%
Mortgage Arrears 1.48% (May 2019) 1.19% (Nov 2018) +0.29%
(2020 figures not
(delinquency rate)
available)
19 Sydney Market UpdateKEY POINTS
1. Median house prices increased by 14.5% to $1,010,426 compared to June
2019.
2. Median dwelling price increased by 13.3% to $875,749 compared to June
2019.
3. Strongest performing suburb for house prices was Vaucluse, followed by
Carlingford, Loftus/Yarrawarrah, Sydenham/Tempe/St Peters and Woronora
Heights.
4. Weakest performing suburb for houses was Cabramatta.
5. Weakest performing suburbs in 2019 for apartments were Ryde, Homebush,
and Mascot.
6. Sydney’s rental vacancy rates are slightly higher compared to June 2019.
However, this tells only part of the story as following a period of declining
vacancy rates in the second half of 2019 (down to 2.5% in February 2020),
vacancy rates have increased markedly since the COVID-19 pandemic and
increased by 1.3% to 3.8% in June 2020.
7. Some areas have been harder hit by the COVID-19 pandemic than others.
Sydney’s CBD has seen rental vacancies topping out at 14.8% in May 2020,
compared with 4.2% in February 2020.
8. Median weekly rental prices were declining even before the COVID-19
pandemic. Weekly median rates for a house were $699 in January 2020, a
decline of 1.55% on January 2019. However, prices have declined further
since January, with median weekly rates down a further 8.87% to $637 per
week.
Sources: CoreLogic | Domain | www.statistica.com | SQM Research | 7news |
BIS Oxford Economics | propertyology.com.au
20 Sydney Market UpdateCOMMERCIAL MARKET Sydney has several sizeable office precincts, including the CBD, North Sydney, Parramatta, Chatswood, East Sydney, Pyrmont-Ultimo, Bondi Junction, Macquarie Park and Botany/Mascot. The metro office market performed strongly overall, with $11.9 billion in sales recorded in the year to June 2020, up more than $3.5 billion on the previous twelve months. The CBD accounts for 67 per cent of the total Sydney office market, recording $7.9 billion of total sales, up $2.6 billion on the previous twelve months. However, it is worth noting that all of the top 10 sales in the Sydney metro area occurred during the second half of 2019. At the start of 2020, the Sydney CBD vacancy rate was the second tightest in the country after the Melbourne CBD, with a slight decline in office vacancy rates from 4.1 per cent in January 2019 to 3.9 per cent in January 2020. However, vacancy rates have increased in the past six months, partly due to the impacts of COVID-19, but also due to new office supply entering the market. The Sydney market has so far felt less impact than the Melbourne market, with the Sydney CBD now having the tightest office vacancy rates of any CBD in the country. The Sydney CBD currently has office vacancy rates of 5.6 per cent, which represents a 1.7 per cent increase on January. These rates remain low by historical standards. Demand for space in the Sydney CBD has been fueled by the technology, fintech and co-working sectors, which have replaced the finance sector as the key sectors looking to lease space within the CBD. The floor space occupied by the seven largest technology occupiers in Sydney, including Facebook, Amazon, Atlassian and Google, has increased by 220 per cent in the past five years. The finance sector in comparison has only leased an additional 15 per cent floor space in the same period. Sydney is the undisputed technology hub of Australia, with 68 per cent of the nation’s fintech (Financial Technology) companies and 48 per cent of all new start ups. The creation of an Innovation and Technology Precinct in Southern Sydney adjacent to Central Railway Station will boost an additional 250,000sqm and 25,000 jobs in the technology, fintech, start up and co-working sectors, further cementing Sydney’s preeminence as the nation’s fintech hub. However, the tightest vacancy rates in the country are actually in Parramatta CBD, with an office vacancy rate of 4.5 per cent, up from a low 3.2 per cent in January 2020. The revitalization of the Parramatta CBD over the past 10 years, plus cheaper leasing rates compared to the Sydney CBD, has led to high demand for space from a number of larger tenants. A number of new office buildings have either been completed or are under construction to meet this demand. One example is a new office tower at 32 Smith Street, Parramatta, which will be anchored by QBE Insurance. 21 Sydney Market Update
COMMERCIAL MARKET
KEY STATS
2020 2019 Change
Sydney Metro Office $11.9 billion $8.5 billion +$3.5 billion
Sales (114 sales) (107 sales) (+7 sales)
Sydney CBD Office $7.9 billion $5.4 billion +$2.6 billion
Sales (28 sales) (27 sales) (+1 sale)
Sydney CBD Vacancy 5.6% (Jul 2020) 3.7% (Jul 2019) +1.9%
Rate 3.9% (Jan 2020) 4.1%(Jan 2019) -0.2%
Premium Grade 3.8% (Jul 2020) 2.7% (Jul 2019) +1.1%
Vacancy 3.6% (Jan 2020) 3.8% (Jan 2019) -0.2%
4.7% (Jul 2020) 3.2% (Jul 2019) +1.5%
A Grade Vacancy 2.6% (Jan 2020) 3.6% (Jan 2019) -1.0%
7.5% (Jul 2020) 4.1% (Jul 2019) +3.4%
B Grade Vacancy 5.2% (Jan 2020) 4.5% (Jan 2019) +0.7%
Total Stock (Sydney 4,952,281 sqm 5,009,233 sqm -56952 sqm
CBD)
4.5% 4.6% -10 basis
Yields (prime) points (-0.1%)
5.2% 5.3% -10 basis
Yields (secondary) points (-0.1%)
$1,172 per sqm $1,153 per sqm +1.65%
Net Face Rents (prime)
Net Face Rents $789 per sqm $778 per sqm +1.41%
(secondary)
21% 20% +2%
Incentive Level (prime)
Incentive Level 20% 18% +2%
(secondary)
4.5% (Jul 2020) 2.8% (Jul 2019) +1.7%
Parramatta Office 3.2% (Jan 2020) 3.0% (Jan 2019) +0.2%
Vacancy Rate
23 Sydney Market UpdateTOP 10 OFFICE SALES SYDNEY METRO AREA
(July 2019-July 2020)
Building Name/Address Percent Sale Sale Date Buyers
Purchase Price
d
Chifley Tower, 2 Chifley 50% $900m Aug 2019 Charter Hall Office
Square, Sydney Fund/Deep Value
Wholesale Property
Fund
Tower 2, 300 Barangaroo 25.1% $755.1m Jun 2019 GIC Pte Ltd
Avenue & Tower 3, 200
Barangaroo Avenue &
International House, 3
Sussex Street, Sydney
Darling Park Towers 1 & 25% $531m Jun 2019 GPT Wholesale
2, 201 Sussex Street, Office Fund
Sydney
Wynyard Place 25% $450m Aug 2019 Hong Kong Monetary
Development, 2-12 Authority
Carrington Street & 285
George Street and 10
Carrington Development,
10 Carrington Street,
Sydney
Jessie Street Centre, 4- 100% $411.4m Sep 2019 Charter Hall Australia
12 Macquarie Street, Investment Trust
Parramatta
Liberty Place, 161 25% $400m Oct 2019 Industry
Castlereagh Street, Superannuation
Sydney Property Trust Core
Fund
118 Mount Street, North 100% $350m Nov 2019 Spezialfonds
Sydney
Piccadilly Complex, 222 50% $347m Aug 2019 Stockland Trust
Pitt Street, Sydney
135 King Street, Sydney 50% $335m Aug 2019 Investa Commercial
Property Fund
Central Square, 323 100% $325m Nov 2019 LaSalle Investment
Castlereagh Street, Management
Sydney Australia Pty Ltd
25 Sydney Market UpdateKEY POINTS
1. Total CBD Stock of 4,952,281 sqm, a decrease of 56,952 sqm on the previous
12 months. Around 100,000 sqm of office space has been withdrawn from the
market pending refurbishment. Just over 150,000 sqm in new office space will
be released to the market in the next few years.
2. Total sales value of all Sydney’s office precincts combined was $11.9 billion
from 114 sales in year to June 2020 compared with $8.5 billion from 107 sales in
year to June 2019.
3. The Sydney CBD accounts for 67 per cent of all office sales of the total Sydney
market, with $7.9 billion from 28 sales in the year to June 2020, compared with
$5.4 billion from 27 sales in the year to June 2019.
4. Overall vacancy in January was 3.9%, a slight decrease from the 4.1% recorded
a year previously. However, vacancy rates rose to 5.6% by July 2020, partly due
to impacts of COVID-19 and partly due to new stock.
5. The technology, fintech and co-working sectors are the key sectors driving
leasing demand for office space in the CBD.
6. Net face rents and prime incentives both increased slightly in twelve months to
December 2019.
7. The Parramatta CBD has the nation’s lowest office vacancy rates, recording
vacancy of 4.5% in July 2020, up from 3.2% in January 2020.
Sources: RP Data | Property Council | Savills | Knight Frank | Colliers International
27 Sydney Market UpdateINDUSTRIAL MARKET Sydney’s Industrial markets have experienced very high growth in capital values in the past three years. Capital values for industrial properties across metropolitan Sydney increased by 17.5 per cent in the twelve months to September 2019. The Western Sydney precinct recorded the highest number of sales and lease transactions, but there was significant capital growth in three other precincts. The South Sydney precinct recorded capital growth of 78 per cent, while Northwest precinct recorded 68 per cent and Outer South West precinct recorded capital growth of 56 per cent. While capital values have increased, sales activity for the first quarter of 2020 was at its lowest level since 2010. Investment activity for the first quarter was down to just $210 million in assets compared with $580 million for the same quarter in 2019. For the twelve months to March 2020, sales for industrial assets over $5 million totalled almost $1.5 billion. This is down 32 per cent on the same time last year. This is due to larger corporations and institutions holding off from purchasing or divesting assets due to market uncertainty. Due to border closures resulting from the COVID-19 pandemic plus the requirement for all overseas purchases to be approved by the Foreign Investment Review Board (FIRB), it is likely that most purchases in the medium term will be from local purchasers. Sydney is land locked and services a population of 6.5 million between Newcastle and Wollongong. As such, there is limited supply of prime grade land and a strong demand for transport and logistics sites to service the needs of this population. Due to this demand and the key role of the transport and logistics sectors to supply the basic day to day necessities of the population, the industrial sector is well placed to ride out the short-term uncertainty created by the COVID-19 pandemic. The COVID- 19 pandemic is likely to result in long term cultural shift in the way consumers buy their goods, with e-commerce likely to increase. Higher take up rates for on-line shopping will create further transport and logistics demand within the industrial sector. The transport, logistics and fast-moving consumer goods (FMCG) sectors are the most active in the leasing market, with demand for space from these sectors accounting for 53 per cent of leases in the Western Sydney precinct. Overall, demand for space is strong across all industrial precincts, with just over one million sqm in industrial space leased across Sydney during 2019. With limited stock, this has created very tight vacancy rates. 29 Sydney Market Update
KEY STATS
2020 2019 Change
Investment Capital $1.5 billion $1.98 billion -32 per cent
(Sales of assets over
$5 million)
Net Face Rent (per $153 (Q1 2020) $151 (Q1 2019) +1.32% (+$3)
sqm)
Yield 4.70% (Q1 2020) 5.04% (Q1 2019) -0.34%
Incentive Level 9.3% (Q1 2020) 8.9% (Q1 2019) -0.4%
Land Value $1,057 per sqm $1,214 per sqm -12.93%
(Q1 2020) (Q3 2019)
Capital Value $3,292 per sqm $3,000 per sqm +9.73%
(Q1 2020) (Q3 2019)
KEY POINTS
1. Net face rents have increased slightly, up by nearly 1.32 per cent.
2. Yields have tightened from 5.04 per cent to 4.70 per cent due to tight supply of
available properties.
3. Sydney has recorded strong capital growth rates for industrial assets in the past
three years, with some precincts recording annual growth above 50 per cent in the
twelve months to September 2019. The fastest growing precincts were South
Sydney (up 78 per cent), Northwest (up 68 per cent) and Outer South West (up 56
per cent).
4. Vacancy rates trended downwards in 2019 and there is limited supply of quality
space in well located areas.
Sources: Colliers International | Savills | Knight Frank
31 Sydney Market UpdateRETAIL MARKET In common with other capital cities, the retail sector in Sydney faces some significant challenges including the growth of on-line retail, depressed consumer confidence, and a trend towards non-discretionary spending. The Reserve Bank and Federal Government have been providing stimulatory economic conditions to promote business and consumer sentiment across Australia, but the retail sector continues to face challenges. The retail sector as a whole across Australia faces challenges in adapting and transitioning from the old bricks & mortar economy to the new economy combining on-line retailing with bricks & mortar consumerism. The challenges faced by the retail sector have been exacerbated by the COVID-19 pandemic. Many retailers were forced to close during the shut down period in March and April, and a number have since ceased trading completely. A recent survey by real estate agent Savills found that many landlords have less than 60 per cent of their tenants trading and expect vacancy rates will increase significantly over the next 12 months. The sectors hardest hit by the pandemic have been the café/restaurant sector – which was required to shift to take away services only during the shutdown and is still constrained by limits to the number of customers they can serve at one time – plus the beauty services sector. The Australian Bureau of Statistics released figures showing that retail sales spiked in March due to panic buying, but for April sales fell by 17.9 per cent month-on-month compared to a 9.2 per cent fall for the same period last year. Also notable was that online sales have increased significantly, with ABS statistics showing that online retail now accounts for 9.7 per cent of all retail trade, up from 6.1 per cent in June 2019. Commentators are expecting this level of online growth to be sustained post- pandemic. Given that the retail sector was already facing challenges as outlined above, it is likely to take some time for the sector to recover. However, despite the challenges, retail assets are still trading. Neighbourhood Centres are the most popular retail asset with investors due to their affordability, proximity to population centres and exposure to non-discretionary retail. Neighbourhood, Regional and Large Format Centres accounted for 56 per cent of all retail assets sold in the past year. However, retail asset transactions are down overall year on year. 33 Sydney Market Update
KEY STATS
2019 2018 Change
CBD 4.70% 4.70% 0
Average yield
CBD $12,825 $12,253 +$572
Average gross face rent
CB 9.50% 9.40% +0.1%
Average incentive
Regional Centres 4.8% 4.75% +0.25%
Average yield
Regional Centres $1,950 $1,950 0
Average gross face rent
Regional Centres 14.0% 14.0% 0
Average incentives
Neighbourhood Centres 6.30% 6.25% +0.05%
Average yields
Neighbourhood Centres $950 $1,000 -$50
Average gross face rent
Neighbourhood Centres 17.0% 15.5% +1.5%
Average incentives
Sub-Regional Centres 6.30% 6.18% +0.12%
Average yields
Sub-Regional Centres $1,200 $1,275 -$75
Average gross face rent
Sub-Regional Centres 19.0% 17.5% +1.5%
Average incentives
Large Format Retail 7.4% 7.2% +0.20%
Average yields
Large Format Retail $488 $492 -$4
Average gross face rent
Large Format Retail 8.0% 8.0% 0
Average incentives
Average vacancy rates for enclosed 2.61% 2.5% +0.11%
centres
35 Sydney Market UpdateKEY POINTS
1. According to ABS Online Retail Turnover report for June 2020, online retail
accounted for 9.7% of total retail trade.
2. Largest transaction was the sale of a 50% share of Westfield Burwood, 100
Burwood Road, Burwood, for $575m in May 2019. This was followed by Central
Park Mall, 28 Broadway, Chippendale, which sold for $174.5 million in October
2019; and Norton Plaza, 55 Norton Street, Leichhardt, which sold for $153.2m in
August 2019.
3. Retail sales in NSW grew at 3.7% in year to June 2020, which is above the
national average of 2.7% and the five year average of 3.1%.
4. Neighbourhood, Regional and Large Format shopping centres represented 56%
of retail asset transactions in past 12 months.
5. Regional and sub-regional centres are experiencing tough trading conditions
due to greater exposure to discretionary retailing, such as fashion and
department stores and are more exposed to footprint rationalization by the larger
chain stores – for example Myer and David Jones have both reduced their
footprint across the country’s regional and sub-regional centres.
6. A total of 1.1 million sqm of retail space forecast to be delivered by 2022. Of this,
340,000 sqm is currently under construction.
Sources: Savills | Colliers | JLL
37 Sydney Market UpdateMEDICAL
There were nine transactions of medical centres with a total value of $29,561,667
within the Sydney CBD, Sydney Fringe and Parramatta areas in the twelve months
ending July 2020:
1. Bridge Street Dental Clinic, Suite 101, 4 Bridge Street, Sydney – sold for
$718,000 in July 2019 to a private investor.
2. Fullerton Health Aus and Jobfit Health Group, Lot 7 (whole of Level 6), 23
O’Connell Street, Sydney – sold for $22,770,000 in November 2019 to Australian
Prime Property Fund Commercial.
3. Action Health, Suite 303, 5 Hunter Street, Sydney – sold for $1,122,000 in
January 2020 to a private investor.
4. Sydney Osteopathic Medicine, Suite 808, 109 Pitt Street, Sydney – sold for
$375,000 in July 2019 to a private investor.
5. Michael JW Cooper Gynaecologist & Endoscopic Surgeon, Unit 31, 187
Macquarie Street, Sydney – sold for $750,000 in September 2019 to a private
investor.
6. Dr J.Dixon Hughes, James Ritchie Surgeon and Medical Services Committee
NSW, Unit 32, 187 Macquarie Street, Sydney – sold for $1,600,000 in January
2020 to a private investor.
7. Dr Michael Levitt’s Dental Care, Suite 505-507, 229 Macquarie Street, Sydney –
sold for $1,050,000 in March 2020 to a private investor.
8. Wattle Street Psychotherapy Practice, Lot 58, 330-370 Wattle Street, Ultimo – a
part interest was sold for $176,667 in June 2019 to a private investor.
9. Dr Anil Kumar and Dr Rashmi Suryawanshi, Lot 12, 370-376 Church Street,
Parramatta – sold for $1,000,000 in July 2019 to a private investor.
Source: RP Data
39 Sydney Market UpdateMEDICAL
This compares with 16 transactions with a total value of $15,671,515 in the twelve
months ending July 2019:
1. Chifley Dental Care, Lot 76, 12 O’Connell Street, Sydney – sold for
$1,000,000 in October 2018 to Goswell Custodian Nominees Pty Ltd.
2. Dr Claude Hakim Gynaecologist & Dr Stephen Muller, Lots 104 & 105, 187
Macquarie Street, Sydney – a half share was sold for $750,000 in April 2019
to an owner/occupier (Dr Hakim).
3. Dr John McMahon and Sydney Clinical Psychologist Centre, Suites 413-414,
229 Macquarie Street, Sydney – sold for $457,000 in September 2018 to a
private investor.
4. Vision Clinic, Suite 606-607, 229 Macquarie Street, Sydney – sold for
$825,000 in May 2019 to a private investor.
5. Vision Clinic, Suite 605, 229 Macquarie Street, Sydney – sold for $420,000 in
May 2019 to a private investor.
6. Dr Bhaswati Bhattacharyya, Suite 1012, 229 Macquarie Street, Sydney – sold
for $270,000 in March 2019 to a private investor.
7. Dr Eric Klein Dental Surgeon, Suite 521, 375-377 George Street, Sydney –
sold for $760,000 in April 2019 an owner/occupier (Dr Klein).
8. Dr David Sykes, Prosthodontist, Units 13 & 14, 60 Park Street, Sydney – sold
for $650,000 in August 2018 to an owner/occupier (Dr Sykes).
9. Our Dentist@World Square, Lot 1, 650 George Street, Sydney – sold for
$830,000 in September 2018 to private investors.
10. The Australian Centre for Adult Orthodontics and Orthopaedics, Lot 38, 650
George Street, Sydney – sold for $940,000 in April 2019 to private investors.
11. Grow Psychology, Suite G.07, 55 Miller Street, Pyrmont – sold for $310,000
in December 2018 to a private investor.
Source: RP Data
41 Sydney Market UpdateMEDICAL
13. Glebe Family Medical Practice, 114-116 Glebe Point Road, Glebe – sold for
$5,250,000 in July 2018 to a private investor.
14. IOH Injury & Occupational Health, Suite 51, 28 Ross Street, Parramatta –
sold for $440,000 in June 2019 to a private investor.
15. IOH Injury & Occupational Health, Suite 51, 28 Ross Street, Parramatta –
sold for $440,000 in June 2019 to a private investor.
16. Con Bonovas Physiotherapy and MG Orthopaedics, Suite 406, 55 Phillip
Street, Parramatta – sold for $650,000 in June 2019 to a private investor.
17. Parramatta Eye Centre, Lots 15-18, 34 Charles Street, Parramatta – sold for
$1,669,515 in June 2019 to private investors.
18. Parramatta Eye Centre, Lot 19, 34 Charles Street, Parramatta – sold for
$450,000 in December 2018 to private investors.
Source: RP Data
42 Sydney Market UpdateCO-WORKING
1. Sydney has the second highest concentration of co-working spaces in
Australia after Melbourne.
2. There are 164 co-working spaces within the Sydney metro area, of which 68
are located within the Sydney CBD.
3. Co-working spaces occupy a total of 255,337 sqm across the Sydney metro
area.
4. Co-working spaces occupy 144,658 sqm or 2.9 per cent of total office
space in the Sydney CBD
5. The largest co-working space in Sydney is the Sydney Startup Hub at 11-13
York Street, Sydney with 17,000 sqm across 11 levels.
Source: Charter Keck Cramer | Coworker.com
43 Sydney Market UpdateReport compiled by:
Brendon Wood
Property Researcher
1Group Property
Advisory
P 1300 788 368 SYDNEY
F 1300 788 369 MELBOURNE
BRISBANE
1group.com.auYou can also read
