The north shore in Sydney is returning to its former self as more office towers are being constructed to satisfy the demand of the expanding commerce industries.
Having gone through tough times when office vacancy reached heady levels of about 20 per cent, the area was turned into a residential zone.
But with significant stock withdrawals and rising rents in Sydney’s central business district, the demand for office accommodation across the north shore is expected to rise substantially, according to Knight Frank’s managing director, North Sydney, Angus Klem.
He said North Sydney is now “well and truly an adjunct to the Sydney CBD”.
“Over the next two years significant stock withdrawals in the CBD will see an exodus of tenants to North Sydney and the other north shore markets,” Mr Klem said.
There is also the planned state metro line that has led the state government to buy up properties in North Sydney, which has led to a tightening of stock.
Knight Frank’s Giuseppe Ruberto, director of office leasing, north shore, said a number of tenants were opting away from the CBD due to cost and the limited options available. He said instead tenants were choosing to operate within the north shore with North Sydney expected to be a big winner over the next 24 months.
“Effective secondary rents in the CBD core have risen by over 20 per cent in the last 12 months, with rents now sitting over $900 per square metre gross in some locations, so it is no surprise tenants are now considering other options. Recently we have seen tenants, including BT Australasia and Chubb Insurance, committing to North Sydney from the CBD,” Mr Ruberto said.
He said the lack of prime space in North Sydney was an issue of the past with 101 Miller Street as the only premium building available and experiencing strong leasing success with a number of floors leased, highlighting the demand for quality assets.
Another development is by DEXUS Property Group at 100 Mount Street, North Sydney. The group has appointed JLL national head of leasing, Tim O’Connor, and JLL head of office leasing North Sydney, Paul Lynch, to partner with DEXUS’ leasing team, headed by Chris Hynes, on the project’s leasing.
DEXUS executive general manager of office and industrial, Kevin George, said the group had received some strong inquiries to lease the office space since it had agreed to buy 100 Mount Street. “Now that we have settled on the acquisition, we can progress leasing discussions,” Mr George said.
Knight Frank’s Tyler Talbot, director, institutional sales, North Sydney, said north shore investment activity had been strong over the past 12 months and this was expected to continue with high demand from both domestic and offshore groups.
“Limited quality stock, falling interest rates and the real prospect of significant rental growth has been driving down yields,” Mr Talbot said.
Knight Frank’s latest research report, the North Shore Office Market Overview: August 2016 found about 80,000 square metres of office stock has been earmarked for permanent withdrawal from the North Sydney market over the next four years.
According to Knight Frank’s Alex Pham, senior research manager, NSW, the significant withdrawal of stock saw the North Sydney vacancy rate dipping to its lowest level in four years at 7 per cent in July 2016.