RESEARCH & CONSULTING

GROWTH DRIVERS DEMOGRAPHIC TRENDS MARKET OUTLOOK

With a current population of 218,114 persons, the Wollongong LGA is expected to grow to 257,443 persons by 2036, an increase of 18% compared with June 2019.

The Wollongong LGA produces $12.2B (60%) of the Illawarra Shoalhaven region’s $20.4B Gross Regional Product (GRP). Strategically located 80 kilometres south of age cohorts. As the UOW continues to Wollongong CBD supports 26,000 the Sydney CBD, Wollongong is continuing maintain its upward performance within jobs, almost one third of all jobs in to show signs of a transition away from its the annual ranking of the world’s Wollongong LGA. historic heavy industrial roots, highlighted universities, sitting in the top 1% for the Wollongong is up to 33% more cost by increasing interest from national and quality of graduates in the 2019 QS effective than Sydney, Melbourne or international investors. Graduate Employability Rankings, demand Parramatta CBDs. and enrolments are projected to grow. In recent years the City has benefitted from Office market conditions continue to significant investment in infrastructure At a regional level, the NSW Government improve, owing to the rise of the projects including the $20 million has committed $101 million for the shared services sector with tenants revitalisation works of Crown Street Mall, construction of the Berry to Bomaderry seeing Wollongong as an attractive the new $120 million Wollongong Private Princes Highway upgrade and $65.6 place to do business. However, a lack of large contiguous A-grade Hospital, operated by Ramsay Health million for construction of the Albion Park leasing options in the market has Care, and the $134 million expansion of Rail bypass. It has also allocated $648.2 placed a cap on demand. Limited the Wollongong Public Hospital. million towards the modernisation of rail leasing options are causing rents to infrastructure to deliver improvements on rise. In addition to public investment, the T4 Eastern Suburbs and Illawarra Line Wollongong has attracted over $1.4 billion amongst others, positioning Wollongong Yield disparity between Sydney’s in private investment in city centre projects to benefit from improving accessibility. metro markets and Wollongong is since 2012, including the $268 million driving demand for quality stock recent upgrade to Wollongong Central For real estate markets, these projects across the office and industrial sectors. Shopping Centre by GPT Group, which coupled with Wollongong’s supportive was considered to an impetus for further demographic profile will be key influences Tenant migration from Sydney and private capital investment into Wollongong. on the shape and magnitude of occupier increased demand from port related demand across a number of sectors. industries has seen a large An uplift in the region’s key employing improvement in Wollongong’s industries of health care and education has For the Wollongong CBD office market, industrial market. meant that population growth has they will help catalyse its emergence as stemmed from incoming skilled workers. At regional hub for local businesses and also the same time, resilient demand from a fast-growing location that can attract domestic and overseas students attending occupiers looking for an alternative to the The University of Wollongong (UOW) has Sydney markets, but still within close propelled population growth in younger proximity and rich amenity.

Data Dashboard Wollongong in Context

ECONOMY POPULATION JOBS $12.2 Billion 218,114 Persons 96,000

2 WOLLONGONG INSIGHT SEPTEMBER 2020 RESEARCH

residents across the wider Illawarra $1.4 Of predominantly private Economic powerhouse region travelling to Greater Sydney for billion investment since 2012 work each day. More than 60% of these With a Gross Regional Product (GRP) of commuters work in white-collar $12.2 billion in 2019, Wollongong is one of occupations predominantly professional the largest economic contributors to services, technology and ICT, regional growth in NSW. Health care and Regional business hub for construction and finance. education are two of the largest contributors knowledge service jobs to regional output, contributing over $2.0 billion and employing more than 20% to Large talent pool local jobs. While knowledge services is one of the fastest growing sectors, construction, Supported by the growth and reputation 15 Record number of cranes mining, financial services, professional of UOW, businesses based in cranes in the CBD services and manufacturing remain critical Wollongong have access to a large and industries in Wollongong, helping to build its highly skilled talent pool, providing a competitive advantage as the economic and constant flow of graduates who are cultural heart of the Illawarra region. looking for opportunities to work locally. Demand for inner city living, The university is known for its research 1,100 with over 1,100 residential excellence, with 57 disciplines at, above units units under construction in Commitment to target or well above world standard and over the CBD 10,500 new jobs 270 academic and research collaborations worldwide. In September 2019, Wollongong City 28,000sqm of A-Grade Council endorsed a jobs target of 10,500 office under construction new jobs over the next 10 years. While this Competitive location is almost double the amount achieved over to setup business the past decade, the strategy is underwritten by growth in knowledge service based jobs Wollongong has a well-established Cultural renaissance under- knowledge services sector. Wollongong way with 110 new bars, to capitalise on the highly skilled talent pool cafes and restaurants available in these areas. It is likely that is the least expensive location with the opening since 2012 Wollongong CBD will capture much of this lowest salary and real estate costs at a growth, given the ambition to drive growth in total of $7,886,923 for an indicative 150 knowledge services that will support seat Knowledge Service centre operation demand in the office market. delivering a savings in the range of 28- 33% relative to comparable locations, according to a Fifth Quadrant report Access to 23,000+ commissioned by Advantage Wollongong commuter pool in 2018. In addition, the study found staff turnover rates are only 8% in Wollongong Wollongong has a large commuter pool of compared to 19% throughout Australia. skilled workers, with around 23,000

Comparative operating costs for a 150 seat shared services facility

Wollongong Sydney Melbourne Parramatta

Total Salaries $7,090,000 $9,640,000 $9,635,000 $9,640,000

Cost of Staff Turnover $96,923 $316,514 $316,514 $316,514

Real Estate @ $700,000 $1,750,000 $1,225,000 $962,500 1,750sqm

Total $7,886,923 $11,706,514 $11,176,,5140 $10,919,014

Being located in Wollongong would result 33% 29% 28% in a saving to companies

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In response to strong local economic conditions and Wollongong’s Household Composition Wollongong LGA Population attractiveness as a place to live, 2016, Wollongong LGA Growth Projections 2002-2036 population growth in the Wollongong LGA Group 300,000 is currently running at its highest level Household Projection since 2010. Over the 12 months to June Couples no kids 250,000 2019, population growth across the Lone 5% Persons Wollongong LGA measured 1.0%, above 25% 200,000 the 0.8% recorded for Regional NSW 26% (NSW excluding Sydney) over the same period. As a result of recent growth, the 150,000 Wollongong LGA has a total population of 218,114 persons, making it one of the 100,000 most populous LGA in NSW outside of 12% Single 32% 50,000 Sydney. Parents Families

Given a strong labour market and its 0

2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 affordability, population growth has been 2002 aided by Sydney residents relocating south to Wollongong. Over the two most recent Census periods (2011-2016), Looking ahead, strong population growth Drawing upon NSW Government 10,909 persons moved to the Wollongong is expected to continue. Although house projections, the population of Wollongong LGA from Sydney, up from 8,342 persons price growth in Sydney is showing signs is expected to grow by 18% between 2019 over the five years prior (2006-2011). of moderation, wages growth nationally and 2036, at which point 257,443 persons has been weak and it is expected that a are expected to reside in the Wollongong By area, population growth in the greater volume of Sydneysiders will LGA. Wollongong LGA has been concentrated relocate to Wollongong driven by its in a select few pockets, underpinned by affordability and proximity to Sydney. land subdivisions in the West Dapto/ Horsley precinct. Elsewhere, solid population growth has been recorded at

Haywards Bay (land subdivisions) and the Wollongong CBD where numerous apartment projects have been launched Illawarra Population Growth, 2012-2017 in recent years. By SA1 Region

Population by Age, 2019 Wollongong LGA v NSW

85+ 80 - 84 75 - 79 70 - 74 65 - 69 60 - 64 55 - 59 50 - 54 45 - 49 40 - 44 35 - 39 30 - 34 25 - 29 20 - 24 15 - 19 10 - 14 5 - 9 0 - 4

8% 6% 4% 2% 0% 2% 4% 6% 8% Wollongong LGA NSW

4 WOLLONGONG INSIGHT SEPTEMBER 2020 RESEARCH

Whilst 47 Burelli Street is fully pre- committed, the A grade market will welcome a further two developments at Positive office market Historically, the A-grade vacancy rate has been extremely tight, averaging 140 Keira Street (5,259 sq m) and 3-5 fundamentals 3.5% since January 2008. Rawson Street (5,489 sq m) by end of the The Wollongong office market is The limited options for occupiers seeking year. The development at 140 Keira Street supported by solid local economic prime space, especially requirements of is a speculative A-grade office fundamentals, which has elevated both 500+ sq m of contiguous floor space has development which will offer large open business and employment growth. Over meant they have had to seek alternative plan floor plates surrounded by quality the two years to June 2019 there was a options in the secondary market. As a retail and lifestyle amenity. The building 7.5% rise in the number of businesses result secondary vacancy has tightened currently has interest across over 90% of across all industries and 6.1% in white to 13.2%, down from 14.9% over the its space with completion at the end of collar industry businesses (Wollongong year, this being demand driven with 407 August. At 3-5 Rawson Street (Avante) a East & West SA2 regions). sq m of positive absorption recorded major mixed use development will over the period. encompass 5,500 sq m of office space. The metro Wollongong market currently Additionally, 101 Crown Street (Lang’s accounts for 29% of employment in the Tight A grade market aids Corner) commenced construction in July LGA, emphasising its importance to the rental growth and will deliver 13,000 sq m by 2022 of region. Outlined in the draft Economic which 5,000 sqm has already been pre- The lack of available leasing options in Development strategy by Wollongong committed. the Wollongong prime market is Council it was identified that there is a need for more quality office space in the beginning to flow through to rents with a Wollongong CBD in order to build its select basket of buildings achieving rents Relative value driving reputation as a nationally significant city in excess of $520/ sq m gross. More investment broadly however, prime gross face rents to do business and invest. The positive With an increasing number of buyers in Wollongong are averaging between growth in employment levels in becoming priced out of the Sydney and $425-$500/sq m. For secondary grade conjunction with a local government major metro markets, a growing number buildings, gross face rents currently supportive and identifying the need to have turned their attention towards non- enhance and grow the Wollongong CBD, range from $300-$400/sq m. metro and large regional markets, the outlook is positive for the local office attracted by the higher yields metrics on market. New developments to ease offer. Investor demand in the Wollongong

prime vacancy pressure office market remains strong both from Vacancy hits six year low Over the past 12 months there has been domestic and offshore, albeit volumes As at January 2020, the office vacancy no new office supply added to the have been restricted as a result of assets rate in Wollongong measured 9.1%, Wollongong office market. However being tightly held. Since 2018, investment tightening from 10% a year prior and 2020 looks to bring the largest addition volumes ($5 million +) totaled $87.3 reaching a six year low. The withdrawal of new supply in a single year on record, million. of two buildings 120 Smith Street (1,400 with over 17,000 sq m expected to be The recent transaction of 45-53 Kembla sq m) and 31-41 Crown Street (950 sq delivered. Currently under construction is Street for $58.4 million to Castlerock is m) have been the catalyst for the the new HQ for IMB bank at 47 Burelli the largest office transaction on record in tightening vacancy rate. Street, this will see IMB relocate from Wollongong. Sold by Black Opal Bay Pty For the prime market, vacancy measured 205 Crown Street into an A –grade office Ltd, the 6,761 sq m building was sold with 2.2% as at January 2020, a slight uptick building of 6,695 sq m, due for a 7.1 year WALE (fully occupied) with from the 1.9% recorded 12 months prior. completion in late 2020. major tenant the ATO, the transaction reflected a core market yield of 5.26%. Wollongong Vacancy Average A-Grade Yields by Grade & Total Vacancy, 12 months to Wollongong Vs Selected Major Non-CBD Sydney Following the recent sale of 45-53 Kembla January, 2008-2020 Office Markets, September 2020 Street, average yields are now estimated

7% to range between 5.50% to 6.50% for 20 %

18 upper A grade assets. In the secondary

16 market means investors continue to 6% 14 require an elevated risk premium where

12 average core market yields currently

10 range from 7.5% to 8.5%. Given yield 8 5% disparity between Sydney’s metro 6 markets, there remains headroom for 4 further yield compression in Wollongong. 2 4% A reduction in incentive levels, coupled

0 with growth in face rents will aid the

Park

Rhodes

Liverpool

Macqurie

Sydney

Jan-08 Jan-10 Jan-11 Jan-13 Jan-14 Jan-16 Jan-17 Jan-19 Jan-09 Jan-12 Jan-15 Jan-18 Jan-20

Parramatta compression story for well located and

Wollongong OlympicPark TOTAL MARKET A-GRADE SECONDARY quality assets. PRIME YIELD RANGE AVERAGE YIELD

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Wollongong Major Industrial Precincts The regional NSW industrial market, in particular the Illawarra region is Average A-Grade Industrial Core experiencing a period of strong growth Market Yields (%) and demand. Heightened by the positive Wollongong Vs Sydney Regions, July 2020

market fundamentals and conditions 8.5

across the industrial sector as a whole 8.0

that are benefiting from growth in e- 7.5 commerce and the ongoing evolution of 7.0 the supply-chain. 6.5

6.0 With industrial take-up and locational 5.5 preferences for businesses heavily influenced by port related activities, 5.0 industrial space in the Wollongong region 4.5 is primarily located around Port Kembla, 4.0

Unanderra and Wollongong (see Map 2).

Sydney

Northern

Sydney

Sydney

Sydney

Inner West Inner

Outer West Outer South West South Outside of these areas, industrial activity Wollongong is scattered, although with a focus along Sydney South the Princes Highway, to the west and

south west of Lake Illawarra. Industrial Land

Wholesale trade dominate & warehousing close behind at 16% and 15%. Major businesses and logistics sector in warehousing operators have established themselves demand has increased and has resulted To provide perspective on the types of within the Unanderra industrial precinct in steady rental growth. At present, industrial net rents in Wollongong broadly industrial based businesses that are to position themselves as the focal point range between $110-$150/sq m for A- located in Wollongong, we have looked to service the greater Illawarra region. Grade premises and $80-$110/sq m for into the businesses that have Global and national logistics operators secondary options. amalgamated within the industrial such as Star Track Express, TNT precinct at Unanderra, immediately north Express, Toll Priority and Fastway -west of Port Kembla. Couriers are all well established High yield metrics attracts businesses within the precinct. investors The largest share of businesses within Investor demand for industrial assets the Unanderra industrial precinct (by Undeveloped zoned land across the Wollongong region has number) falls under wholesale trade and presents opportunity remained strong, with the low interest rate services at 30% and 18% respectively, According to the latest DPIE environment, positive market with manufacturing and Transport, Postal Employment Lands Development fundamentals and high yield metrics on Monitor, Wollongong LGA, there is offer in comparison to Sydney has made currently 298.5Ha of undeveloped Wollongong an attractive investment option specifically for owner occupiers Unanderra Industrial Business Profile employment land of which 86% is zoned By Number, Jan 2020 industrial. The majority of this land is and Self Managed Super Funds (SMSF). located around Port Kembla, Unanderra Due to the dynamic of the investor market and the select number of assets, the Other and West Dapto. With Sydney industrial market is tightly held which has hindered Retail Trade land prices at record levels, there is Wholesale investment volumes over the past year. 3% Trade significant opportunity for the region to Construction 11% capitalise on attracting industrial based 30% At present, average core market yields 7% occupiers to the market that have been squeezed out of the Sydney market. range from 7.0% to 8.0% for A-Grade assets, however, upper prime assets with 16% Steady rental growth long WALEs are trading below this range as investors are still principally focused Manufacturing 15% Over the past 12 months the rise of on assets with long term rental security 18% online retailing has boosted demand for Transport, and by strong lease covenants. Postal & warehousing, transport and logistics Services Warehousin Secondary assets present an elevated g facilities across Sydney and in other risk and are trading on average between pockets of NSW with the flow on effects 8.0% to 9.0%. felt in the Wollongong market, leasing

6 WOLLONGONG INSIGHT SEPTEMBER 2020 RESEARCH

Housing market holds firm Given the current Covid-19 pandemic and Wollongong Lifestyle economic recession and high uncertainty around the nature and speed of economic recovery, housing prices across most cities have remained steady. The shallow number of listings and pent up demand carrying over from a restricted lending phase over the last few months in conjunction with monetary and fiscal support from the Australia Government have been the catalyst for housing prices remaining firm at this point in time.

Outperformed Greater Sydney market Strong population growth and historically low interest rates in conjunction with its relative affordability and improved infrastructure and amenity has fuelled the Wollongong housing market over the past lot affordability relative to local house Apartment market remains five years. Dwelling prices (house and prices. steady apartments) across Wollongong have increased by 5.5% per annum on average The bulk of Wollongong’s land estates Over the past five years, apartment price over the last five years in comparison to are located within the West Dapto Urban growth has averaged 4.8% per annum Greater Sydney at 4%. The median Release Area with pockets elsewhere at across Wollongong with a current dwelling price in Wollongong is $664,000, Howards Bay, Figtree and further north median value of $589,000, underpinned a 44% discount to the Greater Sydney at Bulli. Further south there are by solid investor demand that have been median price of $957,000, the discount significant land releases and priced out of the Sydney market and the has narrowed significantly over the last developments in Albion Park and Shell record low interest rates. Despite the five years with a discount as high as 62% Cove. With median house prices record level of apartment completions in in mid 2015. approaching $1 million in Sydney, 2017, the market has been well placed to residents moving to Wollongong from absorb this and developer confidence Land market demand Sydney have provided a key source of remains strong with 2019 recording its second strongest year of apartment Wollongong’s land market has performed demand for new housing and has added completions. strongly in recent years, buoyed by a rise to the region’s population growth. in first home buyer demand and improved

Wollongong Dwelling Completions Wollongong Houses v Apartments Wollongong vs Greater Sydney House & Apartments, Wollongong LGA Wollongong Suburb (2500) Median Dwelling prices

'000 1,800 $900 '000 $1,100 $1,000 1,600 $800 $900 1,400 $700 $800 1,200 $700 $600 1,000 $600 $500 $500 800 $400 600 $400 $300

400 $300 $200

200 $100 $200 $0 0

2014 2015 2016 2017 2018 2019

Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20

Mar-20 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Apartment House Mar-10 HOUSES APARTMENTS GREATER SYDNEY WOLLONGONG

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RESEARCH & CONSULTING Katy Dean Associate Director +61 2 9036 6612 [email protected]

Marco Mascitelli Senior Analyst +61 2 9036 6656 [email protected]

Ben Burston Partner, Chief Economist +61 2 9036 6756 [email protected]

KNIGHT FRANK ILLAWARRA Ben Mostyn Partner, Head of Illawarra +61 477 213 947 [email protected]

James Mulcair Partner, Leasing and Asset Manage- ment Services +61 410 483 422 [email protected]

Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs. The Illawarra region includes the four local government areas (LGAs) of Kiama, Shellharbour, Shoalhaven and Wollongong.

Abbreviations & Glossary: Core Market Yield: The percentage return/yield analysed when the assessed fully leased Important Notice net market income is divided by the adopted value/price which has been adjusted to © Knight Frank Australia Pty Ltd 2020 – This report is published for general information only account for property specific issues (i.e. rental reversions, rental downtime for imminent and not to be relied upon in any way. Although expiries, capital expenditure, current vacancies, incentives, etc.) high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank Australia Pty Ltd for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank Australia Pty Ltd in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank Australia Pty Ltd to the form and content within which it appears.

Outlook Report Sydney Industrial Sydney CBD Office Investment Trends 2020 Market Overview Market Overview 2019 February 2020 September 2019 Knight Frank Research Reports are available at KnightFrank.com.au/Research