In the education sector, new schools and universities are being built and existing facilities are being upgraded to provide quality education infrastructure. The government's School Infrastructure NSW program is a prime example of this. Overall, Sydney's infrastructure pipeline aims to support the city's growing population and economy. It is expected to create jobs, stimulate economic growth, and improve the quality of life for residents. Interest rates in Australia are likely to have reached their peaks which will be beneficial to Sydney consumers, given house prices are the highest in the country. Economic growth is expected to moderate further in the short-term before returning to trend growth from about 2025. Population growth is likely to continue to underpin domestic demand while elevated infrastructure spend will also drive economic activity. Dwelling investment is likely to rise over the course of 2024 to respond to the housing shortfall, after a decline in recent times. Overall, the Sydney/NSW economy is likely to remain buoyant despite global risks. SYDNEY CBD OFFICE MARKET OVERVIEW Demand and Supply According to the Property Council of Australia, the Sydney CBD comprised of 5.2 million sq m of stock as of year-end 2023. There were no new office developments completed within the Sydney CBD NSW MAJOR INFRASTRUCTURE PROJECTS AND TIMELINES Infrastructure Project Projected Completion Rail Sydney Metro City and Southwest 2024 Parramatta Light Rail 2024 Sydney Metro Western 2026 Sydney Airport Sydney Metro West 2028 Road M6 Stage 1 2025 M12 Motorway 2026 Western Harbour Tunnel 2026 Air Western Sydney Airport 2026 Source: CBRE Research, 1Q 2024 over 2023, and the only new office space added to the market’s inventory was through refurbishment of older stock. Given the lack of new supply, inventory in the Sydney CBD declined over the last 12 months as existing properties were withdrawn for future development or refurbishment. While no new developments were delivered in 2023, there are several projects currently under construction across the CBD and net supply is forecast to total 157,900 sq m in 2024. Developments to be completed over the next 12 months include Metro Martin Place (105,000 sq m across two towers) and Parkline Place (48,000 sq m). Each of these projects are built above stations being constructed for the new Metro train line which will begin operation in 2024. The supply pipeline will slow down considerably following 2024. Net supply is forecast to reach a combined total of only 84,000 sq m over 2025 and 2026. The office stock to be delivered in 2025 will comprise primarily of smaller refurbishment projects. The next major office development to be delivered to the CBD will be the Atlassian HQ (57,000 sq m) in 2026. Demand across Sydney remained steady over the course of 2023, although headwinds limited actual transaction activity. Leasing interest improved over the course of the year as occupiers obtained greater clarity on their employees’ office usage and visitation patterns. CBRE data indicated that office visitation in the Sydney CBD reached an average of 75% of preCOVID-19 levels by year-end 2023, and this trend remains supportive of future demand for office space. Despite the improvement in office visitation, deal timelines remain drawn out and this has muted transaction activity. There also continues to be some tenant contraction throughout the market, especially by larger occupiers, and this tempered net absorption totals in 2023. Overall net absorption for the CBD totalled negative 104,000 sq m over the last year. The flight-to-quality trend has persisted through 2023 as occupiers continue to show a preference for higher grade space. Prime properties in the CBD recorded negative net absorption of 41,000 sq m over the last 12 months, while secondary buildings recorded negative net absorption of 63,000 sq m over this time. This trend was also evident when looking at absorption totals across the various CBD precincts. The primary benefactor of the flight-to-quality has been the CBD Core precinct which recorded positive net absorption of 16,000 sq m over the trailing 12-month period. The only other CBD precinct to record positive net absorption over this time was The Rocks. Overview Leadership Performance Framework Other Information ANNUAL REPORT 2023 113
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