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  • Writer's pictureLabassa Capital

Why Sydney Still Leads the Pack

Updated: Mar 15



Australia’s variety of desirable capital cities offer real estate investors several options to invest their capital. This article explores the dynamics that cement Sydney's position as the unrivalled heart of Australian real estate. With a focus on demand trends, geographical constraints, and the emergence of alternative CBDs, Sydney is set to continue its growth trajectory.

 

Continuous Growing Demand

Resilience in the Real Estate Market

Sydney's real estate market has displayed unwavering resilience, as evidenced by its median dwelling price growth in the 2023 calendar year. The median house price rose to $1,600,000, achieving an annual growth of 10.6%. Median unit prices grew by 6.3% in the same period to $800,000 (Domain, 2023). Achieving high growth at high prices demonstrates continuous demand for housing in the city.


Catalysts for Demand

Several factors are propelling this insatiable demand. Population growth, driven by international migration and a thriving economic landscape, remains a key catalyst. The city's reputation for cultural diversity, world-class educational institutions, and a high quality of life further fuels the upward trajectory of migration, both domestic and international.


Implications for Commercial Real Estate

The surge in demand for residential properties in Sydney naturally cascades into the commercial real estate sector. With more residents calling Sydney home, businesses are establishing their presence in this thriving metropolis. The result is a heightened need for commercial spaces, including office premises, retail outlets, and industrial facilities, creating a symbiotic relationship between residential and commercial real estate markets.

 

Landlocked & Limited Space

The Geography Challenge

Sydney's distinct geographical layout, bordered by the sea and the iconic Sydney Harbour, poses unique challenges for expansion. The surrounding rugged terrain further constrains available land. As a result, the only viable direction for growth is westward.


Regulatory Obstacles

In addition to geographical challenges, certain areas within Sydney confront height restrictions imposed by local councils. These restrictions aim to preserve the city's architectural heritage and natural beauty whilst providing clear flight paths. Strict council regulations and zoning laws can present significant hurdles for developers seeking to maximise land use efficiently. For instance, Sydney CBD has a height restriction of 230 metres. In comparison to Melbourne’s 315 metre restriction and Brisbane’s 275 metre restriction, Sydney’s vertical growth is limited.


Population Growth and Urban Expansion

Despite these formidable challenges, Sydney is poised for substantial population growth. Greater Sydney is projected to welcome an additional 1.7 million residents by 2036. To accommodate this influx, property developers are venturing further westward, tapping into available land resources. As population centres expand, the need for new infrastructure and amenities becomes imperative, further enhancing the appeal of these burgeoning regions.

 

Emerging CBDs

The Ascendance of Parramatta

Parramatta, located in western Sydney, is a prime example of an emerging CBD. It is expected to experience a staggering 73% population growth by 2040, as reported by theleader.com.au. This growth is paralleled by a surge in commercial development, transforming Parramatta into a bustling CBD of its own. Western Sydney is not limited by Eastern Sydney’s geographic limitations, however the surge in growth and rapid increase in property values demonstrate a strong demand for alternative CBDs.


Chatswood and Suburban Hubs

Chatswood, situated on the city's North Shore, is another suburban area witnessing a surge in commercial real estate development. Its proximity to the central CBD and robust transport infrastructure make it an attractive business hub. Additionally, other suburbs like North Sydney are predicted to grow by over 100%, underscoring the decentralisation of Sydney's commercial landscape.


Infrastructure and Connectivity

The development of these suburban CBDs is intrinsically linked to substantial infrastructure investments. Expanded public transport networks, including Sydney Metro and bus routes, are ensuring seamless connectivity with the central business district. As businesses decentralise, they bring jobs and commercial activities closer to residential areas, reducing congestion and improving the overall quality of life for Sydney's residents.

 

In conclusion, Sydney's central role in Australian real estate is underpinned by persistent demand, unique geographical challenges, and the emergence of new CBDs. Sydney's position as the premier hub of Australian real estate is a testament to its enduring appeal and adaptability. As of December 2023, 94% of the Labassa Capital Australian Real Estate Credit Fund (APIR LCL3034AU) is allocated in Sydney, 68% of which is comprised by land facilities, and the remaining 32% is comprised of construction facilities. Investing through the Labassa Fund allows investors to gain exposure to the city's development whilst maintaining a strong risk-adjusted return.

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