Sydney and Brisbane’s CBD fringes are continuing to evolve as investment hotspots with demand for modern commercial office space driving up rents, vacancy down and sending the ripple effects to adjoining suburbs.

In Sydney, the harbourside suburb of Pyrmont has led the way followed by Surry Hills and Ultimo. Surry Hills’ rents are performing especially well, increasing at twice the rate of those in the prime Sydney CBD market in the last three years.

Technology, media, start-up, education and information industries are principal drivers of the rise in city fringe demand which has been recently studied in detail by several major commercial property companies.

Making the shift even more significant is the fact that many companies choosing to lay down roots in the city fringes are leaders in their fields. Pyrmont for instance, already often referred to as a Silicon Valley-style hub, is now the choice of Google (which recently extended its lease here to 2021), Thomson Reuters, WeWork and Nova, adding considerable cache to the area’s status as a coveted place to work.

Knight Frank’s recently released Sydney City Fringe Office Market Report reported double-digit rental growth in most fringe precincts in the 12 months to June this year, most of which followed suit with Surry Hills to exceed that of the CBD.

The largest increase was seen in Pyrmont with rental growth of 26 per cent, , with separate city fringe research by Colliers tipping the suburb will from here on benefit from the now tight Surry Hills market and see a higher volume of leasing activity.

Pyrmont is the second largest city fringe market, comprising just over 250,000sqm of office space, and is described in the Knight Frank report as “an emerging digital cluster and beginning to make its mark as a dynamic destination for visionary and creative businesses.”

Following Pyrmont in rental growth in the last year was Surry Hills (21 per cent), Ultimo (18 per cent), Haymarket (17 per cent), Redfern (13 per cent), Chippendale (12 per cent) and Darlinghurst (4 per cent). 

Overall vacancy rate in the fringe fell to 2.8 per cent at the end of the first quarter this year, well below the 4.1 per cent vacancy rate in the CBD. 

 Lifestyle lures

While the big names add cache to the city fringe region, the nature of the suburbs themselves is also making them desirable locations.

Workers are drawn by these areas’ urban amenities, and the chance to work in heritage buildings and old warehouses converted into attractive cutting edge workspaces (the office space at 63 Miller St Pyrmont for instance has been created inside an iconic art deco building where music legends Midnight Oil, Cold Chisel and Silverchair recorded global hits). Combined with the café lifestyle and other leisure options close by such as Barangaroo, King St Wharf and the Sydney Fish Markets these fringe suburbs have become coveted places to work while creating opportunity for suitable business amenity as well.

New developments are taking this into account, factoring in generously proportioned recreational and retail facilities along with office space. A prime example is the recently approved redevelopment of Mirvac’s Locomotive Workshops in Eveleigh (just south of Chippendale and Redfern), a project that will see the historic site transformed into a 27,000 sqm mixed used retail, commercial, educational and recreational precinct with completion scheduled by 2020. 

More recently, tech giant Atlassian was given the green light to anchor the new Sydney Innovation and Technology Precinct located at Central/Eveleigh adjacent to Ultimo. The 15-year plan to develop the precinct has an initial commitment of 250,000 sqm of floorspace for technology companies, including 50,000 sqm for start-ups.   

 Back on track

The story is similar on Brisbane’s city fringe office market where Knight Frank reports vacancy falling and rents rising. “After a number of years of relatively poor market conditions, the fringe office leasing market is now back on track with strengthening rents and lower vacancies, with engineering, IT and property businesses dominating leasing activity,” researchers found.

Like Sydney, the new tenants attracted to the fringe region include some of the biggest names in their industries as Southern Cross Media, international engineering firm WSP, leading Oracle services provider for Australian and New Zealand DXC Red Rock, betting agency Ladbrokes and CPB Consortium.

Knight Frank found the gap in new supply has encouraged the proposal of some smaller speculative developments such as a proposal for 6000 sqm of commercial space within the residential and retail precinct in Sekisui House’s West End Village development.

 “The next wave of commercial supply remains tied to amenity and a vibrant neighbourhood, as this is what tenants require. This continues to concentrate development proposals to the Urban Renewal precinct and Milton Green,” researchers concluded.

“As prime tenant demand has continued to consolidate into 2019 it is expected that further major tenant requirements will trigger development starts during FY20.”