Internet giant Google’s decision to not take up residence at the Bays Precinct in Sydney has set the leasing market aflutter, as it means the group will be back in the market for new digs.
It is currently in the Pymont environs at the GPT Group’s Workplace6 with Accenture and the Mirvac 1 Darling Island Road, which it shares with Fairfax Media, the publisher of The Sydney Morning Herald.
An artist impression of the redeveloped White Bay Power Station. Google announced on Tuesday it had abandoned plans to move its headquarters to the area. Photo: Supplied
Google last year extended its lease at Workplace6 until 2021, and with Accenture hotly tipped to move to the Lendlease Sydney International House at Barangaroo in the next few years, it will allow Google to take out the rest of the property.
But over the years the Google mandate has alternated between 20,000 square metres up to 100,000 sq m. That is why the Bays precinct is an obvious new home for the group. Google, like other tech businesses, also prefers a campus-style office in a city fringe area as opposed to a high rise corporate, CBD tower.
It cited the lack of infrastructure at the Bays Precinct as the main reason for pulling the pin on the sight.
Google’s new search for office space comes as Sydney office rents are nearing a peak. There are predictions rents still have a further 8 to 10 per cent rise to go before reaching equilibrium.
According to Colliers International, over the last year, the Sydney CBD office market has experienced unprecedented rental growth on the back of tightening supply and steady demand, and while in the immediate term it appears that rents will continue to grow, the rate of growth is expected to moderate.
Kristina Mastrullo, the associate director research, Colliers International, said the firm has identified a cycle of strong net supply and increased vacancy resulting in a more balanced office market.
“Since January 2012, the Sydney CBD office market has experienced a period of sustained low net supply combined with stable demand resulting in declining vacancy from 9 per cent to 6.2 per cent in January 2017, according to the Property Council of Australia,” Ms Mastrullo says.
“The 2016 calendar year saw a record year of withdrawals, about 240,000 square metres, caused by the Sydney Metro acquisitions along with hotel and residential conversions has further assisted the fall in vacancy.”
But with a forecast rise in new supply from the completion of a number of new project, including Investa’s 60 Martin Place, Wynyard Place, Quay Quarter Tower and Circular Quay Tower, rents could feel the pinch.
Colliers International’s research says as positive net supply elevates vacancy, net effective rental growth rates are forecast to slip into negative territory over 2021 and 2022.
“During this period we anticipate net face rental growth to remain positive, albeit marginal, at an average of sub-1 per cent quarter on quarter for all grades,” the research says.
“Incentives, however, will increase from an average forecast of 18 per cent at the end of 2019 to 27 per cent by the end of 2022. With weak net face rental growth, net effective growth is forecast to average -0.9 per cent quarter to quarter for premium and -1.2 per cent quarter to quarter for A and B grades – a combined growth rate of -8.4 per cent for the period.”