Sydney's $7 billion renaissance: Massive construction boom underway
If you walk down Sydney CBD’s main streets you might notice things are looking a bit messier than usual.
Office workers curse the dust and demolition. There’s pneumatic drilling, workers shouting, scaffolding everywhere and the beep, beep, beep of cement trucks. Cranes puncture the skyline. It’s noisy, unsightly and inconvenient.
It’s also the mightily expensive renaissance of one of the world’s top international cities.
Some $4.8 billion worth of projects are now under construction in the CBD, according to a new analysis of projects worth more than $10 million by CoreLogic.
That is an unprecedented level of activity for Sydney – or any other Australian city for that matter. And it’s only going to get busier with a further $3.1 billion of approved works still to commence and scheduled for completion by 2025.
Billionaire Bob Ell, who has developed some of the big buildings in Sydney over the past three decades, says the new projects are long overdue.
“They are building them bigger and better than ever before – and they should be, Sydney is a mess,” he says from his Hunter Street headquarters in the heart of the Sydney CBD.
“The city of Sydney looks like an old city – there aren’t many buildings that would meet world standards.”
Ell, 73, has built his fair share of Sydney office towers, including the Allianz headquarters on Market Street which once boasted the biggest floor plates in the city. He has also seen plenty of developers and planning departments come and go as the hotch-potch of Sydney office towers and apartment buildings get approved and delivered.
He says the latest surge in development is not about good planning but more to do with the record low cost of debt and the realisation Sydney lacks fresh new office space.
Across the city the work has begun. In the residential space, Chinese group Yuhu’s 57 story residential tower One Circular Quay and Crown Resorts’ behemoth 71-storey resort tower at Barangaroo are among the biggest. On the commercial front, Lendlease’s Circular Quay Tower will be Sydney’s tallest office tower and Macquarie Group’s 40-storey tower proposal over Martin Place metro station will be spectacular. If you were to leave for overseas and come back in four years you would find a very remarkable difference in the city you knew.
Corelogic’s Eliza Owen says the high levels of development in Sydney CBD are likely the result of several culminating factors.
First, there are the state-led infrastructure projects that reflect the strong fiscal position of the NSW government.
“High levels of stamp duty revenue from the housing boom, and various asset sales, have likely strengthened its ability to implement transport and cultural upgrades,” she says.
The new light rail – costing more than $2 billion – and the new $12.5 billion metro railway are the big ticket infrastructure projects in the CBD.
The head of Property NSW Brett Newman says melding the infrastructure spend with property development and acknowledging the city as a place to live and work is the most complex part of the city’s rebirth.
“The challenge over the next decade is to ensure NSW government infrastructure aligns with CBD development, particularly in relation to the major developments such as the Sydney Metro, the over-station developments at major CBD Metro stations, Barangaroo, Circular Quay, the Bays Precinct and the ongoing development in Darling Harbour.”
And he says its more than just the big infrastructure projects, it’s also about the money spent in “place making” which is an important trend shaping the city.
“Our role sees us responsible for place making in The Rocks and Darling Harbour – two of the most famous precincts in Australia, attracting more than 40 million visitors each year and accounting for a consumer spend of more than $3 billion per annum.
“We aim to deliver a return to government on commercial assets, and deliver memorable, unique experiences for visitors.”
Tourism and Sydney’s attractive lifestyle are helping to drive demand for prime harbour side apartments – the second driver of development cited by Corelogic’s Eliza Owen.
“In the private sector, developers appear to be capitalising on high end residential housing, with well over $1 billion worth of residential works currently underway across Sydney CBD,” she says.
One of the biggest is the former Wanda One development at the old Gold Fields House facing Circular Quay. The apartment and hotel tower has just been bought out by China’s Yuhu whose chief executive in Australia is Nick Tobin.
Tobin, who previously headed Willoughby Council which oversaw the redevelopment of The Concourse in Chatswood on Sydney’s North Shore, says the project will transform one of the most important parts of the CBD.
“It’s a spectacular location – in my opinion, represents one of the best remaining development sites in Sydney and probably the country for that matter,” Mr Tobin says.
“There is of course an obligation to do the site justice and we think this project will certainly do that,” he said.
Tobin says it will help deliver one of the final pieces of Sydney City Council’s vision for enhancing the area by creating open spaces, including thoughtful site links and dining and retail experiences that will energise the ground level.
Hotel and accommodation worth $1.6 billion make up the largest component of projects currently under construction in the Sydney CBD.
More international visitors are coming to Sydney, thanks in part to rising incomes in south-east Asia, and developers are rushing to respond.
Sydney’s iconic Darling Harbour is an example of this.
The $1.5 billion International Exhibition and Entertainment Centre and Sofitel Hotelwas completed in September, Lendlease is full underway with its mainly residential Darling Square project, while the former IMAX site is being re-developed by Grocon into a $715 million hotel called The Ribbon.
Grocon’s Chris Carolan says the project will be transformational.
“It is very special because of the physical shape: it’s a sculpture that will cantilever over Harbour Street – you will drive underneath the hotel as you head towards the Harbour Bridge.”
The hotel will retain the world’s largest IMAX screen and will include 10,000 square metres of public domain. A little further down the Harbourside Shopping Centre – which many consider desperately in need of a makeover – also has a $400 million development application submitted for a redeveloped retail space.
Traditionally, of course, CBDs are all about working, full of big office buildings that fill up during the day and empty at night.
In the last few years several office buildings have been removed for Metro Station development or residential conversion, leading to a lack of supply of office towers. The supply of new office space is set to remain under the historical average for another two years.
This comes as demand from a healthy base of business tenants continues to ramp up, driving down the vacancy rate of the CBD office market to just 4.6 per cent from 5.8 per cent six months ago.
This supply and demand equation is the third factor Corelogic’s Owen says is contributing to the boom in construction. Office landlord and fund manager Investa is currently developing the only two office buildings to be delivered in Sydney’s CBD over the next two years – 151 Clarence Street and 60 Martin Place.
Investa’s group executive Michael Cook is overseeing the 22,000-square-metre A-Grade building at 151 Clarence Street as well as the 40,000-square-metre 60 Martin Place “super premium” space.
“We have been encouraged by the City of Sydney to invest heavily in good design and believe this will be demonstrated in vivid detail as 60 Martin Place and 151 Clarence near completion over the next 12-18 months.
“Developing buildings which add to the Sydney landscape and which meet the City of Sydney’s stringent guidelines is important, but improving the aesthetics of the City and providing workplaces that people find uplifting is a responsibility which we take very seriously.”
AMP Capital has also been investing heavily in new office projects such as the redevelopment of Wynyard station. AMP Capital, through its office fund, along with its separate account client UniSuper, bought out almost half Brookfield’s $1.8 billion Wynyard Place redevelopment in Sydney in what was the biggest single office deal yet in Australia.
Luke Briscoe, AMP Capital’s managing director for Office & Industrial Real Estate says that within the Sydney CBD market over the last decade there has been a particular focus on one sub precinct, which has led to considerable outperformance for that sub precinct. For example, in 2010, he says, it was all about Barangaroo, in 2015 it was all about Martin Place, and in 2020 it is all going to be all about Circular Quay.
“The developments planned, led by AMP Capital at Quay Quarter Sydney, will completely reshape the area, the amenity and the types of industries in and around Circular Quay.”
Balance is key. Property NSW’s Brett Newman says getting the balance right is what will make the city sing.
“Getting the mix of land uses right in the CBD is essential – particularly residential versus commercial.
“The fragmented nature of office tenants in NSW means that theirs is often the forgotten voice in the property industry and the debate around providing more and better office supply. As an occupant of more than 1 million square metres of office space we have a keen interest …”
So does Lendlease’s chief executive for property Australia, Kylie Rampa.
With Lendlease delivering the biggest residential and commercial developments in the Sydney CBD renaissance, it has real skin in the game – both in shaping the city and co-ordinating governments. She believes the interaction demonstrated in these projects demonstrates a “real maturity” in how government and the private sector can partner to achieve a greater good.
“Sydney has long been hailed as the most international of Australia’s cities,” Ms Rampa says, “However, maintaining this position requires the ability to re-imagine and invest in our built environment.
“A world-class city can never be said to be complete.”
Source: Matthew Cranston, “Sydney’s $7 billion renaissance: Massive construction boom underway”, Australian Financial Review, February 16, 2018.