Sydney tenants set for 2017 space race

North Sydney’s office market is becoming even more tightly-held.

The squeeze for office space in Sydney is set to continue.

Experts predict landlords will take full advantage of the city’s cramped market in 2017 as major redevelopments push hundreds of tenants onto the street.

Rental value for premium space has spiked and subdivisions of office floor have firmed as a genuine alternative as the market continues to bulge under demand.

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Leading commercial real estate group Colliers International says the last year has been a turning point for a marketplace on the move.

“We expect the market to tighten further in 2017,’’ Sydney CBD office leasing national director Cameron Williams says.

Displaced tenants to drive B-grade market

He says tenants from 71 Macquarie, 5 Elizabeth and 50 Bridge streets are among the companies now forced to shop around.

“During the year, B-grade core rents for suites up to 500sqm experienced double digit rental growth,’’ Mr Williams said.

“The premium CBD market responded to the demand by subdividing floors and in some buildings by providing speculative fit-outs.

“Competition for small, well-located core secondary tenancies below 500 square metres and $1000 per square metre per annum gross is intense,’’ he says.

The amount of office space in North Sydney is dwindling.

North Sydney is increasingly in demand as tenants are forced out of the CBD.

Williams says vacancies at Barangaroo, Sydney’s newest harbourside park, are the only exception, particularly for larger tenants, though it is a situation likely to shift as landlords lock in contracts during the first half of 2017.

“The financial gap between renewal deals and new lease transactions is widening as landlords leverage off the tightening market,” Williams says.

Colliers International director in charge, Sydney North, Dan Walker says the demand is driving tenants elsewhere.

“(Tenants are) being forced to ‘cross the bridge’ to the North Shore and into suburban markets like Macquarie Park,” Walker says.

North Sydney in vogue

He says North Sydney is seeing the start of a retail revival as a result, with an increase in amenity – bars, restaurants and CBD-like food offerings through 2017 and into 2018.

Meanwhile, Colliers International says Sydney’s residential market had steadied but affordability continues to be a driving factor, with many first-time buyers forced to consider alternative suburbs and products.

Project marketing director Selda MacDonald says 2016 saw more owner-occupiers in the market but investment demand is still high for boutique developments in prime locations.

“Purchasers are willing to pay a little more for good quality and slightly larger apartments,’’ she says.

“2017 will be yet another strong year with developers choosing locations where demand is high and supply is low, predominately where the government is investing in major infrastructure and amenities.’’