Tech startups driving demand for Sydney CBD leases as local fintech sector soars

Sydney’s fintech industry is rapidly developing, with the city housing 60% of Australia’s fintech companies, and startups edging out traditional financial industry players for CBD leases, according to reports from KPMG and Cushman & Wakefield.

Sydney’s booming fintech industry was examined in the ‘Scaling the Fintech Opportunity: For Sydney and Australia‘ report, released yesterday by KPMG and think tank Committee for Sydney.

The report found the number of fintech companies in Australia has grown from fewer than 100 in 2014 to 579 companies today.

Sydney’s fintech sector has been driven by primarily Australian-founded startups, with 521 of the 579 fintech startups Australian owned and the remaining 67 international companies with Australian operations.  This rise in Australian-founded fintech has been bolstered by strong investment, with Sydney-based fintechs receiving $215 million in venture capital investment between 2014 and2016, according to the report.

Australia also leads non-core markets in fintech deals, with half of the 10 largest fintech deals outside of core markets taking place in Australia between the second quarter of 2016 and the second quarter of 2017, according to recent research from CB Insights.

These findings coincide with a report by real estate firm Cushman & Wakefield, which found technology companies are on track to surpass financial firms as key drivers of demand for commercial property leases in Sydney’s CBD.

According to the report, both small and large technology companies have secured 40 leases in Sydney’s CBD over the past 12 months. Some of these companies were seeking 100 square metre offices, while the report also counts the New South Wales government’s $35 million, 17,000 square metre fintech hub, as most of the future residents of the hub are likely to be “tech orientated”.

Sydney’s rental market is notoriously expensive, and startups looking to secure a CBD location would expect to pay $1000 per square metre for a premium office space, with B-grade rentals averaging $725 per square meter per annum, according to  Cushman & Wakefield’s director of research John Sears.

Previously dominated by the banking, finance and insurance-led industries, tech giants like Apple, LinkedIn and Dropbox have since moved in to take prominent leases in Sydney’s famous Martin Place.

Sears believes this is indicative of an “ongoing trend” that has seen a migration from the university affiliations of Macquarie Park.

“Previously, tech companies used to be in Macquarie park; one of the reasons for that was a desire to foster a relationship with Macquarie University,” Sears tells StartupSmart. 

Where once tech startups needed the extra space Macquarie Park provided to house servers and physical products, Sears says that the changing nature of tech has meant leasing offices in the CBD is now more tenable.

“Now it’s all in the cloud or the internet and the key driver is people: it’s their biggest asset,” Sears says.

When it comes to attracting employees, having a Sydney CBD location is a big draw card, according to Sears, with startups enticing talent from around the world to work in the city because “it’s a no brainer — they want to be in the heart of it,”.

What the sector needs to grow

While location may be a draw card for some, KPMG’s report warns there is otherwise a lack of clear incentive for international talent to come to Sydney, which lacks a clear direction for the future of fintech.

While Sydney has seen a huge uptick in the number of fintech startups basing themselves in the city, the report warns the Australian fintech sector is faced with threats from international tech giants abroad, and regulatory challenges at home.

Government plays a crucial role in supporting the growth of Sydney’s fintech sector, the report found, and must continue to develop a vision for the future of fintech. This includes developing government policies that open up the regulatory sandbox and create an even playing field for startups.

To establish Sydney’s fintech ecosystem as a key global player, the report recommends the NSW government updates its existing Financial Services Strategy to grow the blockchain, regtech and payments sectors, while coordinating more extensively with the federal government to continue to promote fintech and make it easier for companies to access government support programs.

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