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Will Sydney's Commercial to Residential Conversions Create Long Term Problems?
Office vacancy rates in Australia's most expensive city could reach 10% within 12 months and continue to increase for a further four years when major new developments at Barangaroo, George Street and Martin Place are completed in the next few years, according to valuers and advisors LandMark White. Research manager Ross Horsley estimates that before the end of 2015 "there would be almost 180,000 square metres of space added to Sydney's CBD" which will be available even before Barangaroo is completed.
Horsley warns that if existing and the refurbished commercial spaces at Martin Place are not successfully leased, converting some of this space to residential, something the city is desperately short of, could prevent the market from crashing although obtaining the necessary planning approval might take time. With commercial to residential conversions in the pipeline for several high profile buildings around the city already, there are no zoning barriers.
Sydney's Lord Mayor, Clover Moore, said that the CBD's population had increased from 4,767 in 1991 to 22,755 in 2011 with it expected to rise to 34,000 in the next sixteen years. Moore noted that while there are benefits to city centre living, and for the city, maintaining the CBD as a commercial hub is essential to the economic success of the city.
This point was echoed by Tyrone Hodge, NSW President of the Australian Property Institute, who noted that such conversions would "effectively remove [land and buildings] from the marketplace, creating future shortages of irreplaceable commercial land". Of acute concern is Sydney CBD's peninsular geography. The area is constrained on three sides by the Botanic Gardens, Sydney Harbour and Darling Harbour. Melbourne, as Professor John Sheehan, from the University of Technology, Sydney, states, is "slowly expanding into adjoining previously residential areas, however Sydney does not have this luxury".
Residential space has always attracted higher rents and sales but demand for residential developments in Sydney is exceptionally high, with the greatest interest from Asia. James Aroney, of Jones Lang Lasalle, said that "[i]n certain cases, overseas buyers are quite willing to buy sites without DA approval and acquire sites for land banking for future development".