2022-04-08-莱坊-North_Shore_Office_Market_March_2022_9页_5mb

North Shore Office Market Summary - March 2022

Core Content Overview

The North Shore office market, particularly in North Sydney and Macquarie Park, has shown signs of resilience and recovery in early 2022, despite the challenges posed by the pandemic. Key insights highlight strong buyer demand, stable net effective rents, and strategic developments that are expected to boost market activity in the coming years.

Main Market Trends

• Strong Buyer Appetite: There is a notable increase in demand for core assets, especially in North Sydney and Macquarie Park, with a significant portion of transaction activity driven by domestic and offshore investors.
• Stable Rents and Incentives: Despite the limited tenant activity, average net effective rents have stabilised, and incentives have peaked at 30%-35%, contributing to a more balanced market.
• Limited New Supply: No new significant supply is expected until at least 2024, which positions the market to absorb current stock and reduce vacancy levels, especially in the prime segment.

Key Insights by Submarket

North Sydney

• Vacancy Rate: Stood at 16.6% as of January 2022, with prime vacancy at 14.9% and secondary at 17.6%.
• Lease Activity: Lease deal volumes in 2021 were triple those of 2020, indicating a return to confidence. Tech and professional services sectors led the deal activity.
• Prime Grade Demand: Premium assets such as 101 Miller Street, 1 Denison Street, and 118 Mount Street have seen strong demand, with the latter now over 80% committed.
• New Developments: 88 Walker Street (Billbergia Group) and 2-4 Blue Street (Lendlease/Keppel REIT) are under construction, with expected completions by end of 2022 and 2023 respectively.
• Investment Activity: 2021 saw $1.1 billion in investment, with North Sydney and Macquarie Park accounting for 69% and 31% respectively. The market remains attractive to investors due to strong income returns.

St Leonards

• Vacancy Rate: Increased to 16.5% as of January 2022, up from 15.1% six months prior, due to limited tenant activity and sublease availability.
• Prime Vacancy: Rose to 15.2%, up from a record low of 1.2%, with the completion of new supply contributing to the rise.
• Secondary Vacancy: Stabilised at 17.3%, down from 18.4% in the previous year.
• New Developments: 558 Pacific Highway (JQZ) is under construction and will add 16,000sqm of prime space by H1 2023. The Crows Nest Metro Station is expected to be completed by end of 2024, enhancing the area's appeal.
• Investment Activity: Despite limited activity, the market remains a focus for strategic acquisitions, driven by the government's investment in the Sydney Metro project.

Chatswood

• Vacancy Rate: Rose to 15.9% as of January 2022, up from a 20-year low of 3.7% in January 2020.
• Sublease Vacancy: Increased to 3.8%, due to the relocation of major tenants like NSW Department of Health and Transport NSW.
• New Developments: No new significant supply is expected, with existing developments such as 799 Pacific Highway (Citadel Towers) and 821 Pacific Highway (Zenith Towers) contributing to the vacancy.
• Investment Activity: Investment volumes have been low, with no assets trading since December 2020, reflecting the tightly held nature of the market.

Macquarie Park

• Vacancy Rate: Increased to 9.8% as of January 2022, with prime vacancy at 8.2% and secondary at 13.3%.
• Lease Activity: Improved in 2021, with manufacturing and tech sectors accounting for 58% of deal volumes.
• New Developments: M_Park (Stockland) and Macquarie Exchange (Frasers/Winten) are under construction, with expected completions in 2022 and 2023.
• Investment Activity: Strong demand for core assets, with prime yields remaining stable at 5.25-5.75%, reflecting sustained investor interest.

Key Market Indicators

Strategic Developments

• North Sydney: Lendlease and Keppel REIT acquired 2-4 Blue Street for $327.7 million, with a forecasted initial yield of 4.5% and rental guarantees. 101 Miller Street (50%) was sold for $330 million to CapitalLand Integrated Commercial Trust.
• Macquarie Park: Stockland's M_Park project at 11-17 Khartoum Road will deliver 16,920sqm of prime space, set to become the new Australian HQ for Johnson & Johnson. Macquarie Exchange Stage 1 at 396 Lane Cove Road is also under development.
• St Leonards: 558 Pacific Highway (JQZ) will add 16,000sqm of prime office space by H1 2023, enhancing the market's appeal with new retail amenity and public domain improvements.

Conclusion

The North Shore office market is showing signs of recovery and confidence, with strong demand for core assets and strategic developments set to increase supply in the coming years. While vacancy rates have increased in some areas, the market remains attractive to investors due to stable rents, strong income returns, and the prospect of future growth.