The idea of Parramatta being the better CBD in Sydney for investment and yield surfaced after Knight Frank announced the sale of 33 Argyle Street, Parramatta in November at an initial yield of 5.26%.

The B-grade office building used to be the offices of the New South Wales Aboriginal Land Council and was previously known as the Ernst & Young Building, according to the Real Estate Institute of New South Wales (REINSW).

The property is situated on approximately 2,046 squares and comprises around 5,247 square metres of net lettable area set across nine levels.

Mark Litwin, associate director of Metropolitan Sales at Knight Frank Australia, attributed the success of the sale of the property to its location.

“The property is centrally located in Parramatta’s CBD, the economic heart of Western Sydney. [It provides] convenient access to the abundance of Parramatta’s public transport links and amenities, including Westfield, Parramatta Square and the Parramatta Light Rail, which is due to become operational in 2023,” he said.

According to Knight Frank, 33 Argyle Street caught the interest of domestic and offshore private investors because they were attracted to the Parramatta growth story.

“As one of the last remaining B-grade office buildings with repositioning potential in Parramatta, the purchaser was attracted to the near-term rental uplift prospects from refurbishment,” said Wally Scales, director of metropolitan sales at Knight Frank Australia.

Another key reason for the success of the sale was potential redevelopment in the future, with planned changes to Parramatta Local Environment Plans (LEP) to rezone the site to B3 Commercial Core, increasing the floor-space ratio to 10:1.

Emilia Teo, a representative of one of the buyers, confirmed that they are pleased with the purchase. She said that Parramatta's office market continues to record robust demand for quality office space amidst little or no vacancy.

“This is bolstered by the NSW government's continued infrastructure plans for rail and road connections that will cement Parramatta firmly as Sydney's second CBD,” she said.

On a broad perspective, Litwin said that the sale of 33 Argyle Street implies the continuing strength of the Western Sydney market. The strong investment activity over the past 18 months has resulted in yields tightening across the prime and secondary markets.

Citing Knight Frank’s latest Parramatta Office Market Brief, REINSW reported that average prime yields have compressed to 5.25–6.50% as at July 2018, while the secondary market has seen yields decline to measure 6.05%, taking the prime and secondary yield spread to the tightest gap on record

The report also found that the Parramatta vacancy rate was 3.2% in July, well below the 10-year average of 7.3%.

Given that the majority of future developments in Parramatta is still pre-committed, the suburb’s vacancy is predicted to remain tight at circa 3% over the next year.

Knight Frank forecasts rental growth to be the main driver of performance over the next 12 months, despite the fact that downward pressure on yields is likely to persist.