More than 18 major office buildings will be replaced in Sydney’s CBD in the next two years, reports the Australian Financial Review.
According to JP Morgan Analysts this equates to 325,000 square metres of office space that Sydney will lose, a number that hasn't been seen since 1970.
The withdrawal of the office towers is to make way for Australia’s biggest wave of high-rise apartment redevelopment in four decades.
Gold Fields House, Hudson House and the former Coca-Cola Amatil building at Circular Quay are among the key landmarks that will be demolished.
Foreign developers from Singapore and China, including Far East Organisation, Dalian Wanda and Greenland Holdings, are among groups leading the investments that planners are calling a once-in-a-lifetime revitalisation of the city.
Far East Organisation paid $151.8 million for the Ausgrid Tower at 570 George Street and plans to turn the ageing office block into apartments. Chinese group Dalian Wanda paid $415 million for Gold Fields House in January. Property agents have tipped its redevelopment could position the waterfront building as Australia's most expensive residential address.
Of the 18 major office buildings slated for withdrawal from the market, about 12 have been designated for residential or hotel use through conversion or redevelopment. The remaining six projects are scheduled to be developed into new office towers and will be offline for, on average, three years, analysts from JP Morgan said.
Rob Sewell, Australian head of office investments for global real estate group JLL, told the Australian Financial Review that the high cost of land and the concentration of business in Sydney was driving development of expensive apartments in a similar way to many of the world's biggest cities.
"We have had generations where the Sydney CBD was just a place where you went to work. At night and on weekends it was dead. Now, though, Sydney is playing catch up with international cities such as New York, London and Hong Kong and is finally coming to life," Mr Sewell said.
The redevelopment has also brought international developers such as Wanda and Far East Organisation (that hold experience in large-scale and high-density mixed-use projects) into the market on a level not seen before in Australia.
Wanda has $US62.8 billion ($79.2 billion) in assets made up mostly of Wanda Plaza developments – near-cities that combine hotels, shopping centres, cinemas, karaoke centres and department stores.
The redevelopment could come as a welcomed reprieve to office landlords who have grappled with tough market conditions and spiralling incentives, according to JP Morgan’s Benjamin Brayshaw.
“If a large part of this space … can be dealt away over the next 12 to 18 months, we believe confidence has the potential to change quickly and there is capacity for the balance of power to shift back to owners," Brayshaw said.
Sydney landlords have had to to prepare for more than 10 new office developments including Barangaroo, Darling Quarter and a revamp of Martin Place, which will inject 400,000 square metres of new office space during the next five years.