How booming populations are driving new business districts

Booming urban populations are pushing companies and investors to explore space outside primary central business districts.

December 17, 2018

From Sydney to Hong Kong, companies are increasingly looking for offices in alternative business hubs, which often offer cheaper real estate and are located close, or easily accessible to, major population centers.

These proliferating urban complexes are breaking the pull of the traditional city center, driven by government investment, transport infrastructure and businesses wanting to be closer to where their employees live, says Tim O’Connor, JLL’s Head of Leasing in Australia.

“Urbanization is happening globally, but it doesn’t mean everything is focused exclusively on a city’s central business district anymore,” O’Connor says. “Companies are going into second and sometimes even third CBDs, in large part because organisations are putting greater emphasis on their people and making sure they are in well located areas serviced by amenities and transport.”

Parramatta, west of Sydney, has always been a business hub, but lacked the government and private sector commitment it needed to thrive. Now it is finally having its day and major projects including the Parramatta Square precinct, Civic Link and the opening up of the Parramatta River foreshore.

Complemented by a growing residential population and university facilities, Parramatta is becoming what O’Connor describes as “a seven-day-a-week economy”.

Cost wins out

Affordability is one of the key drivers of business moves to alternate business districts and it has prompted office commitments from National Australia Bank, KPMG, Deloitte and PWC, which will further bolster Parramatta’s economic clout.

While the cost of an A-Grade office in space-squeezed Sydney city is AU$656.8 a square metre (net effective), the equivalent in Parramatta is AU$378.8, based on existing offices.

Differentials like this are also forcing financial companies and law firms in central Hong Kong – one of the world’s most expensive office markets – to decamp to Hong Kong East, which is becoming a major business district in its own right.

Monthly rents there are on average US$6-11 (AU$8.30-$15.20) per square foot lower than comparable office space in the centre and vacancy has tightened considerably as more businesses opt for cheaper rents.

The tipping point

However, when word gets out about the positive attributes of going alternative, there is a risk that cheaper rent ceases to be one of them.

This is the case in Mumbai’s Bandra Kurla Complex – home to Google, government agencies and pharmaceutical giants – where offices are now priced higher than the city’s traditional business centre.

When the bottom line is at play, along with the desire to attract and retain the best talent through offices in buzzing locations, timing is everything, says Sue Holliday, a Professor at the University of NSW and the former Director General of Planning for NSW.

“If you’re in with the first move and the timing is right it’s a very beneficial investment, but if you’re in too early you could be waiting for a return on that investment for some time,” Holliday says.

Watch the video above to find out more.

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