Sydney's office pipeline supply constrained: Savills Reseach
The future supply pipeline for Sydney offices remains relatively constrained over the short to medium-term, despite a number of large commercial towers commencing construction during the last 12 months, Savills Research has noted.
With almost 70% of this new stock already committed to, there will be an increased amount of backfill space in the market over the medium-term. That said, Simon Hemphill, Savills NSW Research director, advised a large amount of that backfill space will be removed from the market for short-term refurbishment, medium-term redevelopment or removed from the office market altogether for conversion to residential or hotel uses.
The Sydney CBD office January 2015 report noted there is currently just over 247,000 square metres of new and refurbished stock in the supply pipeline under construction and due to complete by the end of 2016, 68 percent of which is already committed. Almost 90 percent of this supply is new space, with construction underway at 5 Martin Place (30,300 square metres), and International Towers T2 (89,000 square metres) and T3 (78,000 square metres) as well as a number of smaller projects.
Gross supply over the next five years (2015-2019) is expected to total approximately 875,500 square metres; however, during the same period almost 510,500 square metres of stock will be withdrawn from market. This will result in 365,000 square metres of net additions in the Sydney CBD, on a per annum basis this is way below the long-term average.
There are a number of buildings within the Sydney CBD that have already been withdrawn from the market or are earmarked to be withdrawn for conversion to residential or hotel use over the next three years. The potential future withdrawals over the next decade add up to almost 256,000 square metres and would shrink the current size of the Sydney CBD by 5.2%.
The resultant spill of tenants, which totals 217,000 square metres, would place considerable downward pressure on the overall vacancy rate.
The bulk of the future supply pipeline is expected to be delivered by the Barangaroo project located at East Darling Harbour, with three commercial buildings known as International Towers Sydney T1, T2 and T3.
According to the latest information available, the project is valued at over $6 billion. Barangaroo is Sydney's largest redevelopment project this century and will evolve over the next 10 to 20 years, injecting more than $1.5 billion into the NSW economy annually.
The first of these towers (T2 – approx. 89,000 square metres) is almost 80% precommitted and due to complete in late 2015, this will be closely followed by T3 (approx. 78,000 square metres) which is 77% precommitted and due in early 2016. The final, and at approx. 101,000 square metres the largest, building is known as T1.
This building is currently only 34% precommitted and is due to be delivered to the market in early 2017.
The Barangaroo Delivery Authority has also announced that Crown and Lend Lease have signed an exclusivity deal for the development of a hotel at Barangaroo South.
The Authority will continue to work with Lend Lease, and now their exclusive rights partner Crown, to negotiate a new location for the hotel in Barangaroo South and oversee the appropriate planning applications that must be approved before any concept moves ahead.