Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

'Huge fan of your work. Very impressive!' - Scott Pape, The Barefoot Investor, Australia's #1 bestseller.

'Must-read, must-follow, one of the finest analysts in Australia' - Stephen Koukoulas, ex-Senior Economics Adviser to Prime Minister Gillard.

'One of Australia's brightest financial minds, must-follow for accurate & in-depth analysis' - David Scutt, Business Insider.

'I've been investing 40 years yet still learn new concepts from Pete; one of the finest young commentators' - Michael Yardney, Amazon #1 bestseller.

'The most knowledgeable person on Aussie real estate - loads of good data & charts...most comprehensive analyst I follow in Oz' - Jonathan Tepper, Variant Perception, 2 x NYT bestseller.

Sunday, 17 July 2016

Yes, it's boom time for Sydney CBD

The sky's the limit!

The latest planning proposals for the City of Sydney, some three years in the making, suggest a tremendous transformation for the city's famous skyline through the promotion of huge "tower clusters" for commercial use (though specifically curbing the construction of apartments).

The biggest shift in Central Sydney planning in the 45 years since 1971 is set to boost the central Sydney economy and employment.

Subject to federal airport approvals, building heights of up to and even above 300 metres are set to be allowed under the new plans, unlocking up to 2.9 million square metres of commercial and office space, about a 30 per cent increase on the existing 8.3 million square metres of floor space in the city. 

The proposals will still allow light to flow to Town Hall, Prince Alfred Park, Circular Quay, Hyde Park, the Royal Botanical Gardens, Wynyard Park, and Martin Place, but aim to put Sydney firmly on the map as a global city of opportunity over the next two decades.

As you can see in the above graphic, new tower clusters will be permitted along the western edge of the Central Business District (CBD) at Barangaroo, to the north by Circular Quay (not too close to the Opera House, of course!), as well as around The Rocks, and Haymarket. 

Notably the plans are specifically designed to prioritise commercial development and to restrict development of residential dwellings or serviced apartments. 

The building of apartments in place of offices is said to represent "a threat to the Australian economy" - hardly the case in perennially undersupplied Sydney, of course, but money and influence talks when it comes to development approvals. 

Where developers build above 55 metres in height, they will be required to make the towers at least half available for productive commercial use, thereby ensuring that the CBD remains the economic engine room of Australia.

Jobs surplus 

It's sometimes through the misuse of statistics that the Central Business District is not the heart of Sydney's employment, which is at best a half truth.

Central Sydney creates a stunning $108 billion of economic activity per annum, close to an incredible 8 per cent of the national economic pie, and is home to some 25,000 residents and more than 300,000 workers each day.

Sydney's CBD also has "the highest concentration of top 500 companies, banking institutions and mainstream artistic and cultural institutions, and is the largest retail centre in Australia".

In reality, the CBD and its surrounding eastern areas are home to a disproportionately high share of Sydney employment, to the extent that the city and eastern suburbs are in the process of creating a huge and widening jobs surplus.

Eastern Sydney (the bit around where the city, harbour , and beaches are located) has created thousands more jobs than workers for a jobs surplus of around 175,000, and is forecast to continue doing more of the same over the decade ahead.

Western Sydney, however, has thousands more workers (1,088,000) than jobs (881,000). 

The net result is that each working day well over 300,000 Western Sydney residents travel out of the region to work, compared to only 100,000 travelling into the region, for a jobs deficit of approximately 200,000.

Worsening jobs deficit for the West

The Western Sydney jobs deficit is projected to get much worse. 

Through 2031 more than half of the city's population growth is expected to be in Western Sydney at 52 per cent - with an extra 1 million residents expected and an estimated 664,000 new homes needed in the region - yet only 38 per cent of the new Sydney jobs are expected to be created there.

By 2041 it is projected that Western Sydney will have a colossal jobs deficit of 340,000, while conversely Eastern Sydney is projected to have a surplus of some 238,000 jobs, with the "high value" professional and business services jobs overwhelmingly centred on the east and only a "comparative weakness" in the west (which is also home to 8 of the 10 poorest LGAs).

Thus by 2041 it is projected that an extra 140,000 persons per day will be using the already congested transport links from Western Sydney, which would require 19 new freeways, six new train lines, or 1,700 new buses.

The wrap

It is little wonder, therefore, that Sydneysiders now place a premium upon place over space, and continue to target the suburbs close to the city. As Deloitte noted:

"Place matters more than ever. As telecommunications and travel have grown steadily cheaper, people have chosen to live closer together rather than further apart".

The City of Sydney plan paves for the way for Sydney's CBD to become Australia's greatest employment hub, thereby embedding greater demand for inner city locations for working and living for decades to come.