Tech firms are the common office tenants in Sydney's city fringes: Colliers

Tech firms in Sydney's City Fringe are the common tenants for the office market, according to Colliers International’s latest Metro Office report.

“Creative industries (and increasingly, tech firms) continue to underpin the City Fringe office market, with these tenant types seeking out space in character/heritage buildings in suburbs such as Pyrmont, Ultimo & Surry Hills.

"Creative industry tenants have been able to collaborate with owners regarding specific fit-out options and in some cases minor refurbishments have taken place – such as exposing ceilings - in order to add a contemporary and modern feel,” the report stated.

However, Colliers says supply is constrained and competition and demand is rising.

“We are seeing consistent demand and increasing competition, as supply is extremely constrained.

"Increased rental levels and a judgement call by owners on the duration of favourable conditions in the residential market are seeing more consideration of retaining properties in office use, rather than the prevalent change of use to residential which has dominated the market in the last few years,” the report warned.

Colliers says that the expansion of the digital and creative industries of late has further constrained supply, leading to a substantial increase in rents over the last 12 months.

“A Grade net face and net effective rents have grown 19.3 per cent and 30.7 per cent respectively with B Grade increasing 9.4 per cent and 19.5 per cent respectively.

"As competition for space has increased, incentives have declined, with A Grade falling three percentage points to 19 per cent and B Grade falling five percentage points to 16 per cent.

"Few examples of incentives in the 20 per cent plus bracket now exist, and we forecast more downward pressure on incentives, with examples already emerging of sub 10 per cent in some cases

"Google has extended their lease to 2021 at Workplace 6 in Pyrmont and confirmed take up of an additional 6,000 sqm of ex-Accenture space in the same building.

"This comes as recent news of Google abandoning plans to move to White Bay Power Station, citing infrastructure shortfalls,” the report stated.

Low vacancy rates is resulting in limited whole floor or building reports, Colliers says.

“Due to low vacancy rates, there is limited whole floor or whole building evidence to report.

"However, we note that our fringe leasing team is currently finalising over 5,000 sqm of leasing transactions in this precinct contributing to the low vacancy environment,” the report commented.

"A 88 sqm office at 88 Foveaux Street, Surry Hills (above) has been listed for $920,000.

"Similarly, an 82 sqm office at 101/330 Wattle Street, Ultimo (below) has been listed for $390,000.

A 29 sqm office at 214/400-410 Elizabeth Street, Surry Hills (below) was recently sold in March this year.

Similarly a 136 sqm office at 95/26-32 Pirrama Road, Pyrmont (below) was recently sold in April this year for $1.5 million.