Rebalancing Sydney as office space becomes residential

‘Rebalancing’ Sydney as office space becomes residentialLack of supply and a shortage of new land in urban areas will lead to more office-to-residential conversions in Sydney’s CBD, with increasing investment coming from Asia in recent years.In a panel discussion entitled ‘Property in the Global Economy’ at the Property Council’s The Property Congress last week, Vishant Narayan, managing director of Real I.S Australia, said that Sydney enjoys a unique position in the property market, with greater interest in re-using CBD space in Sydney than in Melbourne.”In Sydney there’s limited access to land and there’s strong demand for residential accommodation in the CBD,” said Narayan. Led by large Chinese and other Asian investors in the past few years, several B Grade office buildings in Sydney’s centre have been purchased for conversion.”Anything along Hyde Park, Elizabeth Street will pretty much become a residential apartment building,” Narayan told delegates. “And there’s going to be about 600,000sqm of B Grade commercial office space taken off the market.” Narayan compared Sydney’s CBD residential growth to that of Manhattan, New York during the early 1990s. “Sydney is going through that process and we’ll be seeing more of that over the next [few] years,” he said. Narayan called it “a rebalancing story for Sydney”, with supply of office space growing in the near future, when projects such as Barangaroo are completed. Already, the Barangaroo complex has attracted major anchor tenants, including KPMG, PWC and Westpac. He said the office space currently occupied by these tenants “will attract B Grade tenants at pretty attractive rates into better quality accommodation.” “As a result, I think the city will be refreshed. We’ll have a newer city with nicer buildings and people well accommodated, and also the residential aspect of it will add a bit more life to the after-hours aspect of the CBD.” Also on the ‘Property in the Global Economy’ panel, Dr Geoff Raby, chairman and CEO of Geoff Raby & Associates, said Asian investment is likely to continue, reminding the audience that Sydney is a very attractive destination. Meanwhile, Foreign Investment Review Board approvals show an increase in demand for residential housing in Australia, with figures indicating a rise of 93 per cent in the number of approvals for residential housing in Australia in the 13/14 fiscal year, according to panel member Scott Haslem, managing director and chief economist at UBS. “[However], no-one has any idea how many of these approvals end up being a transaction,” he noted. Figures showed that 80 per cent of $12 billion of approvals were across New South Wales and Victoria. “We know that most of those approvals are in the area of new, high-rise medium density inner city. Then you can start to get some pretty high concentrations of what could be driving the demand in inner-city Sydney and Melbourne,” Haslem said. “It could be [that] 40 to 60 per cent of the demand [is] in those tight areas.” Haslem believes that we’re in “the strongest housing construction cycle” since 1993-94 but suggested that there could be tension going forward given that, historically, the housing construction cycle has never come down independently of the RBA lifting interest rates. “This is going to be an unusually long period of low interest rates, so maybe the housing sector can correct on its own, but there’s no evidence of that,” he said. “So I think our outlook is, we’ve probably got a couple of very good years of physical housing construction, which I suspect the RBA would be extremely happy about. Because the easiest way to solve some of these price tensions is to have more houses.”