Is There An Over Supply of Office Space?

Too much of a good thing: Is there an over-supply of office space?

By Philip Graus (Director at Cox Richardson Architects) and Kymbal Dunne (Director – Office Leasing Major Projects at Knight Frank)

JULY 11, 2015

Sydney’s population is set to grow dramatically in the coming decades; by 2050, its population will be more than 7 million people. With population growth comes the need for Sydney to remain globally competitive as a city. There will be a strong need to create and attract new jobs, but in order to do so there must be a supply of contemporary workspaces. If there isn’t, the jobs will simply go elsewhere. While it may appear that there is an over-supply of office space in Sydney, the reality is quite different. In fact, there is a need to do more to accommodate for future growth. This is great news, as there is ample opportunity for agents and their clients to profit from the city’s ever-growing need for both commercial and residential properties.

What does the future hold?

Sydney is increasingly a global market and, as far as office space goes, higher standards and more modern spaces are not only being sought, but are being demanded, by clients – particularly international clients. While it may appear that there is plenty of supply, the supply does not meet demand. Most of the vacant space that is currently available is older C and D grade space. By contrast, the vast majority of demand is for A grade, and to a lesser extent, B grade space. Notwithstanding that there are a significant number of new buildings currently under development, the quantum of unsuitable existing space in Sydney is much higher. Where redevelopment is not a viable option, the challenge is to find a way to ‘rebirth’ these buildings in a way that meets the needs of the population. When you combine this with the strong demand for residential space in the city, there is a wealth of opportunity for not just commercial agents, but also residential agents and property managers who all have a stake in the expansion of Sydney’s CBD. Many owners do not know enough about the buildings around them and their competition or how a potential tenant may view their space, but this information is vital to establishing value and determining a property’s attractiveness. A good agent will provide advice on what to do in order to improve space and make it more appealing. If that solution is beyond the client’s financial capabilities, the agent should then be able to give advice about what the alternatives may be. In some cases, agents lack multidimensional thinking. If an agent properly considers their client’s problem and offers a range of solutions, they will develop a much stronger relationship with their client.

An aging supply

Supply in the Sydney CBD office market is not only segmented, but is aging. Much of the space is obsolete and will need large investment or an alternative use in order to return value. International businesses demand nothing but the best. In order to attract and maintain the high-level of international business, and to remain a global city, Sydney needs to supply buildings and spaces that better serve their occupants, building a community of mixed developments including residential, short stay, office and retail spaces. The practical outcome for agents here is the fact that there is ample opportunity. There is no oversupply of office space, and there is a high need for new space in the expanded CBD to come, as well as a market for refurbishment of existing space. Agents have contact with the market, and also have the experience and market knowledge to communicate to clients. A good agent knows where the demand lies, the key is to identify the alternative uses for property and expose their clients to fresh thinking. Agents and their clients simply need to think outside the box.