New entrants: Global tech invasion in Sydney's CBD tightens office rental market

Sydney’s central business district is welcoming global technology giants including Amazon.com Inc (AMZN.O), Expedia (EXPE.O) and LinkedIn (MSFT.O). The tech invasion has helped drive down the city’s vacancy rate to a near-decade low, according to property manager Jones Lang Lasalle.

Lasalle said that such invasion has tightened the office rental market. The premium of Aussie property yields to three-year term deposit is almost at record highs. Meanwhile, Sydney’s gross rents have risen by almost a quarter in the 12 months to September.

“The global economy is on an upswing and you’ve got a geographically constrained market in Sydney - I’d call it a perfect storm,” Charter Hall Office Trust (CHC.AX) office property portfolio manager Trent James said. Martin Place now also has Facebook (FB.O) and Alphabet’s Google (GOOGL.O) among its residents.

New entrants

Some time-worn buildings have been demolished as new entrants are coming in and existing residents are expanding. It would also make way for high-tech spaces.

In the construction industry, the building spree is expected to lead to employment growth. That is a huge plus as the nation’s economy transitions away from a once-in-a-decade mining boom.

Australia’s two biggest cities, Sydney and Melbourne, see solid leasing enquiries for offices as well as other business hubs. Asia-Pacific vice president at LogMeIn Lindsay Brown said that Australia is very similar to the United States when it comes to technology adoption. “Sydney’s CBD is a tight market for office properties so we had a bit of luck and good timing to secure this place,” he said, according to Reuters.

Amazon has snapped up a nine-floor office in the city’s financial hub. The latest tech heavyweight to expand in Australia can enjoy views of Sydney Harbour Bridge and Hyde Park.

Earlier this year, Amazon.com Inc’s country manager said it is really close to opening here. Rocco Braeuniger’s remarks suggest it will ship goods from its first Aussie warehouse in time for the Christmas season.

Braeuniger added Amazon has signed up "many thousands" of sellers since it has confirmed its plans to open in Australia. Aussies can already purchase products from Amazon offshore, but a local warehouse cuts sizable international shipping costs. In August, it reportedly said it had picked a distribution warehouse in Melbourne, Australia's second-largest city, and on the east coast.

Amazon earlier promised to offer Australia its "marketplace" service. The company would also run its own retail unit, ordering and shipping its own product.