How would you characterise your market at the moment?
Parramatta CBD is a two-tier market where prime stock is in high demand but supply is very low with vacancies at below 3%. In comparison, secondary stock has lower demand, but greater supply. There are very limited options for large tenants, with only one existing option of greater than 3,000 sqm currently available.
Are there any trends you are noticing among the tenants you are talking to?
Many tenants see Parramatta as a strategic location for attracting and retaining staff, particularly government and finance institutions with back-end operations. Parramatta is a low-cost alternative to the Sydney CBD and North Shore, with excellent infrastructure. The main challenges are finding large contiguous spaces, access to capital (for fit-out) and obtaining appropriate approvals from overseas HQs in a timely manner. Therefore many tenants are seeking premises with an existing fit out and/or seeking incentives in the form of fit out contributions – otherwise tenants will opt to remain at their current locations.
What do you think will be the biggest influence on your market in Q1?
The current global economic turmoil, particularly in Europe, will potentially defer a tenants’ decision to relocate. The slow-down in government spending (federal and state) may delay any expansion and relocation plans.
What will rents and incentives do in Q1?
We should expect to see face rents and incentives to remain stable during this quarter, however there may be moderate increases in face rents during the next quarter as vacancy continues to tighten. Incentive levels will remain relatively unchanged due to tenants’ limited access to capital as described in question two, which goes towards relocation and fit-out costs.
What should landlords do to adapt to these market conditions?
Landlords of Prime grade assets should review their tenancy profile and consider creating large contiguous space, to attract blue chip tenants (subject to lease expiries and where it is financially viable). Landlords of secondary assets should consider improving their current asset to achieve industry benchmarks particularly a minimum of 4.5 Star NABERS Energy rating. For example, 100 George Street Parramatta is currently undergoing major refurbishment and as a result has secured a number of new tenants prior to completion of the refurbishment.
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Download a PDF of the Parramatta Q411 Market Overview