Investors migrate south
THE southern end of the Sydney central business district is undergoing a renaissance as investors undertake a number of large-scale leasing and sales transactions.
It was once the heart of Sydney city, when all business revolved around Central Station, until the Harbour Bridge was built and businesses gravitated to the harbour.
One of the largest deals is the pending change in ownership of the Civic Tower at Goulburn Street. The 24-storey office block above the Masonic Centre is being sold by Australand and the PFA Diversified Property Trust.
The US property group Hines is said to be in due diligence for the asset for a price near $130 million.
This deal comes amid speculation that the accounting and advisory firm Ernst & Young is looking to move out of the current space at 680 George Street, in the World Square site, to 190-200 George Street once it's redeveloped.
It is also understood the internet group Google is looking at space in the Central Park project at Chippendale, which is being jointly developed by Frasers Property and Sekisui House Australia.
While the city's attention is focused on the western corridor at Barangaroo South, savvy investors are snapping up bargains in the south.
According to Colliers International, there is only one new development under construction, at 180 Thomas Street, in the southern precinct, which has limited supply.
According to the latest data from the Property Council of Australia, the southern precinct of the city has a vacancy rate of 6.9 per cent compared with the city core's rate of 9.1 per cent.
In Colliers International's latest CBD report, rents in the area are lower than in the northern sector of the CBD and North Sydney, and competitive with Parramatta's.
The average net face rents for A-grade space in the southern CBD range from $400-$450 a square metre a year, compared with North Sydney at $480-$700 a square metre and Parramatta's $400-$475 a square metre.
Tenants that moved into the southern CBD include the Civil Aviation Safety Authority, from Bankstown; Brown-Forman, from Sydney Olympic Park; and the Australian Maritime Safety Authority, from North Sydney.
The associate director of office leasing at Colliers International, Euan Matheson, said the lack of new development was keeping a lid on supply.
Investa Property Group has leased 10,500 square metres of office space in the Centennial Plaza complex at 260 and 280 Elizabeth Street, where the rents have increased and incentives have fallen in the past two years.
''If we compare the cost of existing A-grade space in the south at $450 a square metre to, say, the proposed commercial space that can be built at Central Park in Chippendale, which requires a rental of about $600 a square metre, there is room for further rental growth in existing buildings in the precinct,'' Mr Matheson said.
The national director, investment services at Colliers International, Vince Kernahan, said investors saw the precinct as having a sound tenancy base that was only expected to strengthen.
''The industry groups which feature prominently in the south have remained strong and in some cases are growing,'' he said. ''Telecommunication groups (Telstra), media and marketing groups (JWT and ACP), the legal fraternity with the Downing Centre, and infrastructure and engineering are all well represented.''