The move to redevelop older offices into residential sites has been gaining momentum in the tightly held southern areas of Sydney.
This has been active from Parramatta, where offices sites have been bought for new housing and apartment projects, to South Sydney.
But according to Nicholas Hogg, of Nicholas Hogg Commercial, this is hurting the office market.
"In Parramatta since 2001, there have been 23 CBD sites that have been subdivided into 1726 residential strata units," Mr Hogg said.
That figure compared with only 13 office buildings, housing 13,500 office workers.
He said in the next two years, 12 major sites would be earmarked for high-density residential projects and subdivided into 2600 strata units, but he said that was to the detriment of the office market.
"There is not one office building identified for completion within the next two years in Parramatta," Mr Hogg said.
In Zetland, a high-density residential development site at 97-115 Portman Street, owned by Waverley Council as part of their Zetland Works depot, is for sale.
The sales and investments director at Jones Lang LaSalle South Sydney, Michael Ajaka, said the property would allow redevelopment to residential high-rise, giving a boost to inner-city accommodation.
CBRE capital markets director Daniel O'Brien said demand for real estate with redevelopment potential within the City of Sydney local government area was at its highest level in a decade - as highlighted by the recent multimillion-dollar sale of a site at Rosebery.
"As vacancy rates for commercial and industrial premises contract, opportunities for new housing are becoming scarcer across the city," Mr O'Brien said.
Mr Ajaka said the 1.79-hectare site at Zetland was made up of several office and industrial buildings, with excess land fronting Botany Road and Portman Street.
The depot is zoned industrial; however, the site is under the Green Square Town Centre, which is part of the new draft Local Environmental Plan, and the Green Square Town Centre Development Control Plan. Waverley Council general manager Tony Reed said the council would lease back the property after settlement for up to 18 months, or delay settlement for the same period, giving the council time to establish new premises and allowing the buyer income while obtaining a development application.
Jones Lang LaSalle South Sydney industrial property director Tim Cassidy said the area was now favoured by developers, and had become well known for its transformation from an industrial precinct to a residential one.
"The area benefits from many factors, including proximity to the city, transport, shops and schools," Mr Cassidy said.
"Currently, there is strong demand from developers to secure sites in inner-city locations."
The other sales agent on the deal, Leslie Cheng, director of metropolitan sales and investments for Sydney at Jones Lang LaSalle, said developers were keen on sites such as this due to the strength of Asian home-unit buyers who were attracted to inner-city living and long-term investment.