Sydney likely to see biggest office construction boom since 1980s
With vacancy rates at a record low and rising rents, Sydney's office construction cycle is expected to deliver the city's biggest commercial building boom since the 1980s, according to forecaster BIS Oxford Economics.
More than 2 million sqm of new office space is to be built across metropolitan Sydney between 2019 and 2023, with most of this construction occurring in the CBD, Macquarie Park and Parramatta, the Australian Financial Review reported citing BIS data.
This wave of new supply – the equivalent to North Sydney, Macquarie Park and Chatswood's current office stock combined – will come despite 2016 marking an eight-year high in office completions with 370,000 sqm of office towers coming online, including two towers at Barangaroo and Ernst & Young's new headquarters at 200 George Street.
The surge in development will come from low vacancy rates and strong rental growth. BIS expects the metropolitan office vacancy rate to fall from 6.5 percent to just 4 percent by the end of 2018, a 30-year low, with vacancies even lower in the CBD.
"The Sydney office market is heading towards a sustained period of very low vacancies, which will drive strong rises in rents over the remainder of this decade," Lee Walker, senior project manager at BIS, was cited as saying by the AFR.
BIS said this marked the end of a "moderate supply cycle" that, aided by record levels of existing office building withdrawals, had easily been absorbed, with only a small rise in the metro vacancy rate to 6.5 percent from 6 percent.
As a consequence, Walker said Sydney's time to build commercial property was coming "with a big upswing on the cards".
However, there would be a pause between the recent Barangaroo-led boom and the next because of the time take to complete big office projects.
"Whilst some new projects have commenced as a result, focused on the CBD, Parramatta and North Sydney, large office projects typically take two to three years to build and won't be completed until 2019 or 2020 at the earliest," Walker said.
