Suburban office markets throughout Sydney are being fundamentally reshaped as red-hot demand for residential property sees a mass withdrawal of old office stock for residential conversions, a leading real-estate services firm says.
In its latest forecasts, CBRE says office markets in Epping, Burwood and Hurstville will all shrink by at least a quarter over the next four years as at least 180,000 square metres worth of stock is taken off the market in order to make way for multi-unit residential complexes, placing downward pressure on vacancy rates and even the virtual elimination of some entire markets.
In Epping, available stock is expected to shrink by around 34 per cent amid rezoning to encourage residential development.
Tenants including Unilever and the NSW Government have already relocated, with Westpac tipped to follow following the sale of its current offices at 12-22 Langston Place.
Nearby in Ryde, up to one-third of possible stock may be taken off the market following the sale of 19 Devlin Street, which is currently occupied by Centrelink, while Burwood is expected to shrink by 25 per cent (22,000 square metres), with development approval for conversion projects at Burwood Towers and 2-14 Elsie Street occupied by clients such as RailCorp, Telstra, Pacific Brands, the NSW Government and Centrelink.
Further south in Hurtsville, meanwhile, as much as 34,000 square metres, or 35 per cent of the market, could potentially be withdrawn.
CBRE research analyst Megan Pryor said limited availability of greenfield sites for housing in the aforementioned areas had precipitated a substantial number of sales of office property for residential conversion, and that downward pressure on vacancies in more established non-CBD markets would result as these tenants seek up to 50,000 square metres of space over the short to medium term.
Furthermore, Pryor said, a number of these markets are expected to transition into primarily residential hubs and almost disappear as commercial markets altogether.
“Over the long term we expect smaller suburban office markets such as Epping, Burwood and Hurstville to transition to predominantly residential hubs, while the North Shore markets will maintain a core office function, with increased residential activity outside of the core,” she said.
Outside of the above markets, CBRE reckons as much as 60,000 square metres could be withdrawn in North Sydney and 35,000 square metres could go in St Leonards.
The latest report comes as vacancy rates in Sydney have dropped below those of all other capitals amid an environment of a recovering economy and strengthening demand from clients in traditional white collar sectors such as technology and finance.
While the anticipated additions of three new towers at Barangaroo and new towers in places such as George Street are expected to challenge the CBD markets, the aforementioned withdrawals are expected to lead to lower vacancy rates across most markets outside of the CBD.