Newcastle and Wollongong office markets weakening: HTW
A lack of free parking in the Newcastle CBD and weak rental growth in Wollongong is deterring development activity in the two key regional NSW towns, according to the August property market report by valuer Herron Todd White.
The report, based on market observations by local valuers, paints a picture of a struggling or static NSW regional commercial sector, though with some pockets of growth.
In Newcastle, HTW director Kerry McLeish reports that more parking meters recently installed on the popular Darby Street restaurant strip in the CBD have further reduced the amount of free parking available to office workers.
“Many of the workers that call the CBD home for around eight hours a day drive their cars into work and take up valuable free car spaces on the fringes of the CBD,” McLeish says.
“We bring this up, as it is becoming clear that new commercial developments will be required to think seriously about their car parking requirements. We would envisage that in the future a higher ratio of car parking to office space should be required.”
Newcastle is set to run out of CBD parking space in a decade.
In August last year, developer GPT pulled the plug on its proposed $500 million Hunter Street Mall commercial development in Newcastle following three years of planning.
McLeish says commercial rates and yields appear to be holding steady in Newcastle.
Wollongong valuer Jon Butler writes that regional conditions in the Illawarra region have been weak for some time, with the region struggling to compete with the Sydney suburban market.
A definite two-speed office market is in evidence in Wollongong, with vacancy rates for A-grade office space sitting at 0.5%, compared with vacancies between 16% and 18% for B- and C-grade space.
Despite the apparent undersupply of A-grade space, Butler says there has been no real pressure to date on rental rates to make new construction feasible.
“This would suggest the primary driver in the local office market is affordability.
“Current face rents for A-grade space ranges from approximately $320 to $380 per square metre gross with incentives required to attract tenants.
“The economic rate to encourage new development is estimated to lie in the order of $380 to $400 per square metre.”
However, there have been some pockets of activity, with tenants taking up space within Wollongong University’s Innovation Campus.
The first commercial office building on the campus is now fully leased and the recently completed second building is reportedly 80% leased.