Government reduces exposure to rising CBD rents

Over the past five years, strategic leasing initiatives have saved taxpayers an estimated $80 million when comparing Industry Benchmark increases in office rental costs, to the Government’s portfolio in Sydney’s CBD.

Property NSW CEO, Brett Newman, said effective management of the portfolio, a combination of moving from Premium buildings and negotiating below-benchmark new deals on CBD office space, had delivered savings for the Government and taxpayers.

“Prime Gross Effective office rents in Sydney’s CBD have increased by more than 55 per cent in the last three years and are forecast to increase significantly over the next three years amid constrained supply,” Mr Newman said[1].

“As the State’s property agency, Property NSW has implemented a whole-of-government approach to negotiating leases that deliver better workplace and service outcomes, and reduce exposure to rising CBD rental costs.”

The analysis compares the JLL Prime Industry Benchmark[2] with the Property NSW CBD portfolio and showcases the benefits of the Government moving out of Premium buildings and into A Grade buildings, increasing its presence in the Southern CBD and moving to a hubs strategy across its office portfolio.  

While the Prime Benchmark is not directly comparable to the Government’s portfolio, the analysis illustrates the benefits of the Government change to its portfolio mix.

“The Government has moved from paying around 15 per cent above the Prime Industry Benchmark in 2014 to more than 30 per cent below in 2018[3].

“Changing the composition of our portfolio which has helped drive down costs is a strong endorsement of our strategy to manage the property portfolios of government agencies.

“Every dollar saved in effective portfolio management is a dollar that can be spent on service delivery, including new schools and hospitals,” Mr Newman said.

 The NSW Government is the State’s largest tenant, occupying more than one million square metres of office space across metropolitan and regional NSW.

 Property NSW is also delivering the Government’s Decade of Decentralisation commitment to reduce CBD office space by at least 100,000m² to 2021.

 Significant progress has been made to date, with a reduction in CBD office space of more than 70,000m² – the equivalent of 10 soccer fields.

  

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1 JLL – Prime gross effective CBD rents – Q4 2014 vs Q2 2018.

2 JLL – Prime gross effective market rental series. Prime grade refers to the combination of Premium and A-Grade office buildings.

3 Analysis of Property NSW Prime gross effective rents vs Benchmark Q2 2018.

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