Parramatta CBD poised to lead Sydney office market recovery

However, despite this general trend, figures suggest the Parramatta office market has in fact thrived.

According to the latest Between the Lines report by Ray White Commercial, Parramatta’s apparent resilience has been driven by a strong government presence, which ultimately ensured high absorption levels with limited large-scale vacations or business closures.

“Parramatta CBD continues to be one of the better-performing office markets across Australia, with the impacts of COVID-19 somewhat limited with few major movements due to the pandemic,” Ray White Commercial head of research Vanessa Rader said.

As of March 2021, Parramatta’s office vacancy rate sits at 6.38 per cent, with a total of 809,526 sq m of office stock.

Gross face rents remained stable for both prime and secondary markets at $665/sq m and $570/sq m, respectively, as did investment yields, which stand at 5.35 per cent for prime markets and 5.75 per cent for secondary markets.

But Ms Rader does predict an eventual downturn, with Parramatta’s large development pipeline said to spell trouble as new stock additions fail to adhere to current demand.

In fact, this year, Parramatta is due to see the completion of 32 Smith Street adding a further 26,400 sq m, more than half of which is committed to QBE and Coleman Greig. 6 Hassall Street will be providing a further 28,000 sq m for the University of Western Sydney and UNSW; however it will not be fully occupied together with the boutique development at 85 Macquarie Street. The upcoming completion of a part of the Parramatta Square tells a similar story with commitment levels not meeting supply leaving a shortfall.

Office users, however, are considering their accommodation options, with many businesses rationalising space or looking for cost savings, while taking advantage of the incentives currently on offer.

“Backfill is a growing issue across this market, with completions over the last year and into 2021 resulting in tenant relocation and consolidation resulting in available backfill spaces, including various government departments, Commonwealth Bank, and Telstra,” said Ms Rader.

“This trend will hamper vacancy and keep absorption levels subdued in the first half of 2021, forecast at -15,584 sq m,” she opined.

However, while vacancy rates are forecasted to take a hit over the next few years, peaking at 16.45 per cent in January 2023, Ms Rader believes Parramatta’s reputation as a premier market will be sustained by the underlying strength of the location, its connectivity and quality.

“The quality of stock in this location is akin to any major CBD around the world, and this has not gone unnoticed by the robust levels of investment over the past few years by institutional investors and foreign buyers looking to secure assets in this location,” the research head said.

Ray White Commercial Western Sydney director Joseph Assaf is also confident in Parramatta’s offering, noting that quality new offerings and older-style stock are currently selling to a vast range of buyers, particularly institutional and Australia-based Asian buyers.

“The low vacancy environment is a major drawcard for many buyers as rental growth sets new benchmarks in returns; however, the longer-term confidence in Parramatta is clear as it emerges as Sydney’s true second CBD,” Mr Assaf concluded.