Item 7.11 - Attachment 2

Detailed Report





In January 2011 Council’s Economic Development Team circulated to Councillors a draft options paper regarding business investment and attraction in the Parramatta CBD over the next 3 years.


Parramatta is defined as a Regional City under the State Government’s Metropolitan Strategy, and the CBD is required to house an additional 27,000 employees by 2036. The discussion paper introduces various strategies that Council could implement to absorb existing demand for commercial space from existing businesses looking to grow and demand in new tenant markets to increase the demand for commercial building development within the CBD. It specifically identifies the lack of ‘5 star’, ‘A grade’ commercial buildings as an impediment to business attraction and job growth. The existing vacancy rate in ‘A grade’ stock in Parramatta is as low as 1.8% with ‘B grade’ vacancy being 7% and falling.


One issue explored in the discussion paper is the impact of development contributions on the supply of new commercial buildings. The paper recommends that Council consider accepting staged development contribution payments, in an attempt to reduce the upfront imposition on developers as a means for attracting new commercial development.


Recent DA activity last 5 years


Over the last 5 years, development approvals for multi storey commercial buildings in the city centre have been low. Of the applications that were approved, many were purpose built buildings for public authority tenants including the Sydney Water Building on Smith Street and the Justice Precinct on Marsden Street.


Of the remaining approvals, only four (4) were in the form of new buildings, being four (4) or more storeys in height, and dedicated to non residential uses. Of these, two (2) have proceeded to construction certificate stage, being a 20 storey building at 60 Station Street (known as the Eclipse Building) and a four (4) storey building at Parkes Street.  One factor that was instrumental in seeing 60 Station Street commence was Council’s decision to accept staged contribution payments.


Parramatta Civic Improvement Plan (Development Contributions Plan)


Parramatta Civic Improvement Plan (CIP) came into effect in December 2007 in conjunction with Parramatta City Centre LEP and DCP. This development contribution plan attracts a 3% levy payable on all new developments in the city centre that increase gross floor area and that have a value greater than $250,000.


The development contribution is payable in full prior to the issue of a construction certificate unless the applicant can demonstrate financial hardship. Demonstration of financial hardship is difficult for Council to assess.


Parramatta City Centre LEP


The Parramatta City Centre LEP 2007 covers the Parramatta CBD and extends along Church Street to the north and south, and is generally bound by Parramatta Park to the west and Harris Street to the east. The City Centre LEP splits the ‘city’ into 5 zones, B3 Commercial Core, B4 Mixed Use, B5 Business Development, RE1 Public Recreation and RE2 Private Recreation as shown at Attachment 2.


The B3 Commercial Core zone comprises the area directly north and south of the railway station. This area has traditionally housed commercial development as opposed to retail or residential development as it is well suited for commercial redevelopment. Objectives of the B3 zone include:


·  To provide a wide range of retail, business, office, entertainment, community and other suitable land uses which serve the needs of the local and wider community.


·  To encourage appropriate employment opportunities in accessible locations.


·  To strengthen the role of the Parramatta city centre as the regional business, retail and cultural centre, and as a primary retail centre in the Greater Metropolitan Region.


The land uses permitted within the B3 zone seek to ensure the above objectives are achieved and specifically preclude residential development, ensuring the continued commercial use of the area.


The B4 Mixed Use Zone extends beyond the B4 zone (with the exception of Church Street south). This area currently includes a mix of residential, retail and commercial uses and other special uses. Objectives of the B4 Zone include:


·  To support the higher order Commercial Core Zone while providing for the daily commercial needs of the locality, including:

o commercial and retail development.


While residential development is permitted in the zone, staged contributions would only apply to development that did not include any residential component.


Amendments to the Civic Improvement Plan


In line with the Council’s Economic Development Team discussion paper, it is recommended that Council consider amending its development contribution plan for the Parramatta CBD (the Civic Improvement Plan) to enable Council to consider staging development contribution payments for development that meets all of the criteria below:


·  Development within B3 Commercial Core Zone or B4 Mixed Use Zone  (see Attachment 2); and

·  Predominantly commercial development (i.e. other than ground floor retail); and

·  No residential component; and

·  Has undergone an architectural design competition (in accordance with Council’s LEP) ; and

·  Achieves a ‘5 star’ energy rating (NABERS or Green Buildings Council of Australia or similar); and

·  Achieves an ‘A grade’ property rating (Property Council Criteria or similar).


The staged payments would be in the form of 50% of the total payment prior to the issue of a construction certificate (in-line with existing practices) and the remaining 50% to be paid prior to the issue of an occupation certificate. The outstanding 50% balance would be required to be secured by bank guarantee and would continue to be indexed in line with consumer price index (CPI) increases over time. The CPI increase would be added to the final balance at time of payment.  


The applicant would request that Council consider staging the contribution payments at DA stage to enable compliance with the criteria to be assessed.


It is recommended that this criterion be trialled for a three (3) year period and reviewed at the end of that period to determine whether the change has provided any real benefits in driving new development. This could be measured by the number of new commercial developments that proceed to construction stage as a result of the staged payment methodology, as well as potential survey and consultation with the local property industry.


Potential disadvantages of staging contribution payments


The potential disadvantages to Council in staging development contribution payments include:

·  potential foregone interest income;

·  potential delay in delivering works projects identified in the contribution plan (i.e. while awaiting final payments);

·  potential requirement for additional staff time and resources to administer the staged payments and registration of bank guarantee security etc.


In order to offset any lost interest income, Council would simply charge interest on the staged/final payment.. The interest charged would be based on indicative returns that Council would otherwise have been likely to receive over the expected construction period. This could be based on an average over the construction period of the Reserve Bank of Australia’s (RBA) cash rate or an industry accepted investment benchmark such as  the UBS Australia bank bill index (or similar). This would be detailed in the condition of development consent.


While there could be a delay in the delivery of some contribution plan projects, it must be noted that if residential and mixed use development continues in and around the CBD, development contributions will flow from these developments, and this will give Council room to negotiate on the commercial side while still ensuring development contribution projects can continue. It is considered that the potential long term benefits of attracting new commercial development (and hence more contributions) would outweigh the short term impacts of the timing of payments.


Administration of staged payments and associated security may impact upon staff resources and time. This may need to be accommodated appropriately through additional resources.

Justification for staging contribution payments


Development contributions are one development supply side lever that Council has control over. Therefore, a flexible development contribution scheme could have some real impact with regard to making Parramatta CBD more attractive to investors and boosting new commercial development.


New commercial floor space is equivalent to job growth at a rate of approximately 1 new employee per 20sqm of additional floor space. With a target of 27,000 new jobs by 2036, there is a requirement for the equivalent of one large (25,000sqm) office tower and  approximately 1000 new jobs to be created every year.


Applying the staged payment criteria only to ‘5 star’, ‘A-grade’ and well designed buildings will provide an additional incentive to developers to provide high quality building stock in Parramatta..




Why not apply staged contributions to mixed use or residential developments?


The global financial crisis has impacted Parramatta's commercial property market by making it harder for developers to secure finance. A building now needs to be approximately 70% leased before it will secure finance (up from approximately 30%).


With regard to commercial development, securing pre-commitments from prospective tenants is significantly more difficult than that of residential development. Demand for commercial space is more tentative and the market more competitive with space on offer nearby at Ryde, Homebush and Norwest.


While residential and mixed use developments are also facing similar finance and lending difficulties, the nature of the residential market makes it easier to sell or pre-commit the units individually. Recent activity in B4 mixed use zone has seen a predominance of residential development take up which, if continued, would suppress commercial development over the long-run. While a mix of residential and commercial development in the B4 zone is desired, it is the commercial development that will generate the bulk employment growth for the Parramatta CBD, and therefore this type of development should be encouraged


Housekeeping amendments to Council’s Development Contribution Plans


Council has two development contribution plans being the Parramatta Civic improvement Plan (applies to the CBD) and the Parramatta s94A Development Contribution Plan (applies to the rest of the LGA). These plans commenced in December 2007 and April 2008 (respectively). Changes in legislation since that time have given rise to the need for some minor amendments to the plans as detailed below and in Attachment 3.


·  Insert relevant clause explaining the obligation of accredited certifiers in issuing construction certificates and complying development certificates (both plans).


·  Insert relevant clauses relating to 94E Ministerial Directions, Pooling of Funds, and requirement for detailed cost information (CIP only).


·  Provide a land application map and correct any map boundary errors (CIP only).


·  Specify that the CIP applies to development applications and complying development.


·  Correct typographical errors and misdescriptions


·  Number the works item list within the S94A Plan


·  Update Bike Routes map within the S94A Plan.





Should Council adopt the draft amendments, these will be publicly exhibited for a minimum of twenty-eight (28) days. Any submission received in relation to the amendments would be reported back to Council for consideration before the amendments come into effect.