“It's still a two-tiered economy and a two-tiered property market, with A and B grade - especially A grade - premium property just flying off the handle and not enough construction to keep up with strong demand,” said Alan James from LJH Commercial in Parramatta.
“Hopefully the yields will come down and then hopefully prices will go up.”
According to Property Council of Australia’s latest Office Market Report, New South Wales continues to grow at a slower pace than the nation, with an annual growth rate in Gross State Product of 2.4% to June 2012.
The figure is well below the national average of 3.4% but there are clear signs of an economic lift, with September quarter figures for State Final Demand showing growth of 2.9% (Australia 3.1%) after taking into account inter-state trade.
That’s considered an acceptable rate of growth in the present economic climate given the state’s lack of mining revenue.
NSW should benefit from lower interest rates flowing through the economy, coupled with below average unemployment.
Parramatta has performed better than other metro markets although the vacancy rate has risen in 2012, owing to new supply being added to the market in excess of net take-up.
Parramatta remains a market of contrasts. Space in grades A and B is tight with low vacancy rates and relatively high demand, while the vacancy rates for grades C and D are considerably higher, so the market is healthier than the headline vacancy rate would suggest.
“What we're seeing at the moment is a lot of refurbishment of buildings,” James told WSBA. “There's a lot of owners out there who know it's going to take a long time for a new building to come into Parramatta are trying to cater for the unmet demand.”
“For example 56 Station Street is undergoing refurbishment which is quite extensive, which would hopefully positively affect its neighbour's rating and thus help attract a larger tenant.”
But he said the building had recently lost a major tenant - QBE Insurance which couldn't resist a move to Parramatta's newest premium offering, the Eclipse at 60 Station Street.
The extensive refurbishment of 56 Station Street is aimed at providing for the next generation of office users, including upgrades to the internal and external finishes and fittings and a focus is on sustainability, including energy-efficient air conditioning and lighting upgrades.
“The market experienced its highest level of supply additions in five years – with 25,050sqm introduced in the six months to January 2013,” said Property Council NSW Executive Director Glenn Byres. “The vacancy rate rose from 8.8% to 9.7% – which is its highest level since July 2010.”
James said the sales market had been fairly strong in the last quarter of 2012, mainly due to the sale of 60 Station Street (Eclipse).
“The market has remained strong in the first quarter of 2013, with a few of reasonably large sales,” he said. “That includes 18 Smith Street, which was a 12-storey, A-grade building which sold for just over $47,000,000 and 75 George Street, a six-storey, twin-tower commercial building sold for a little over $32,000,000.”
James said The Lang Centre, at 132 Marsden Street, sold for a little over 25,000,000. “What that says to me is - it's not just the sale of one big premium building, it’s the sale of three pretty good grade-A buildings in recent months,” he said.
“That's a lot of activity from overseas investors and super funds and the end result has been an increase in the buildings' price per sqm.”
James said there also seemed to be more of a drive from government organisations to be in Parramatta and the surrounding suburbs, with a government organisation recently requiring 10,000sqm.
