Strata office space is gaining significant interest from a range of tenants and investors as demand wanes at the bigger end of the market.
Businesses ranging from new consultancy firms and smaller recruitment agents to breakaway groups are being formed by directors and bankers that have taken redundancies from big corporations during the past two years.
Heritage sites at 350 George Street and the small to medium units along King Street and Jones Bay wharves are proving popular for these smaller companies.
On the sale side, the lower interest-rate environment is allowing investors to buy core city office space at a lower price than renting.
The senior negotiator of office services at CBRE, Ben Cohen, said leasing of strata offices was on the ascendancy, with rents being written at an average $650-$700 a square metre, mainly for core city locations of about 100 square metres-plus.
He said popular areas included King Street Wharf, with its proximity to the growing western corridor and adjoining Barangaroo South project.
''Demand is rising from the growth in these smaller businesses that want a prime location but don't need the same space as a big corporation,'' Mr Cohen said.
In his latest report, LandMark White research manager Ross Horsley said strata office activity in the Sydney central business district peaked in the 2008 financial year, with 248 sales totalling $223 million.
In the ensuing years, the market lost favour with investors following the global financial crisis.
But in the financial year to June 30, there has been $109.58 million in sales over 137 transactions, which was a slight increase from the previous year, when $103.40 million of sales were recorded from 132 transactions.
Mr Horsley said the average capital value rate had also picked up, increasing by 6 per cent from $5125 a square metre in the 2012 financial year to $5411 a square metre in 2013, though the size of the average suite sold fell, from 153 square metres to 148 square metres.
Mr Horsley said a breakdown of the four CBD office precincts showed an increase in the number of transactions in all but the midtown precinct, which had a drop from 57 sales to June 30, 2012, to 33 to June 30 this year.
The core precinct increased from 41 to 53 sales, the western corridor rose from 22 to 27, and the southern precinct rose from 12 to 24.
''In terms of dollar volumes, the sum of purchases in the city core precinct increased from $32.4 million in 2012 to $36.9 million in the 2013 financial year; the midtown precinct rose from $21.6 million to $25 million, the western corridor fell from $40.2 million to $37.7 million while the southern precinct increased from $9.1 million to $9.9 million,'' Mr Horsley said.
Capital values are also improving across the core area of the city, which includes 350 George Street.
The average value in the city core precinct rose from $5796 a square metre in 2012 to $5970 a square metre to June 30 this year, a rise of 3 per cent. According to LandMark White, the midtown precinct's values rose an average 11 per cent, from $4612 a square metre to $5122 a square metre.
CBRE capital markets director Gavin Lloyd said heritage conversions were also helping to create value, and in some cases better financial outcomes, compared with modern office assets.
''That has led to developers and investors getting involved, particularly with low interest rates making higher-yielding property look attractive,'' Mr Lloyd said.
Sydney's historic heartland of The Rocks was also not only a key tourist destination but an increasingly popular location for business, according to Ray White Commercial.
The office leasing director at Ray White Commercial, John Skufris, said the local business centre at 88 Cumberland Street, The Rocks, had been the source of a number of recent office leasing transactions.
Mr Skufris said Government Property NSW had taken out a five-year lease for about 2140 square metres of contiguous office space on levels one and two at 88 Cumberland Street at an initial gross rental of $740 a square metre a year.