2021-09-14-莱坊-North_Shore_Office_Market_September_2021_9页_6mb

North Shore Office Market Summary (September 2021)

Core Content Overview

The North Shore office market, encompassing North Sydney, St Leonards, Chatswood, and Macquarie Park, has shown resilience and strong confidence in the face of the pandemic. The market is experiencing a shift in investment and leasing activity, with a notable increase in domestic investment and a continued trend of "flight to quality" as tenants and investors seek premium-grade assets.

Key Insights

Market Trends

• Confidence in the market remains strong, with a significant rebound in transactions after the easing of restrictions and signs of economic recovery.
• Leasing activity in North Sydney has increased, with the market stabilising vacancy at 16.4% as of July 2021, driven by the completion of large lease deals and a reduction in premium grade vacancy to 6.1%.
• Domestic investment has become more prominent, accounting for 85% of investment volumes in 2021, compared to 15% from offshore funds.
• Prime yields are stabilising, but there is still potential for compression due to demand from opportunistic investors seeking assets with development upside.
• Rental growth has halted, with incentives rising to attract tenants, resulting in a decline in net effective rents.

Market Indicators (July 2021)

Market Analysis by Area

North Sydney

• Activity and enquiry have increased, leading to stabilised vacancy at 16.4%.
• Large lease deals have contributed to a significant decline in premium grade vacancy, with 1 Denison over 90% committed and 118 Mount Street likely to reach this status by year end.
• Tech sector dominates leasing activity, accounting for 37% of deals, while professional services account for 25%.
• Occupiers are increasingly seeking whole floors rather than suites, with over 67% of deals in the 500-2500 sqm range.
• No significant new supply is expected until 2024, which supports vacancy reduction and maintains market strength.

St Leonards

• Vacancy has increased to 15.1%, driven by limited tenant activity and the relocation of NSW Health to the Royal North Shore Health Precinct.
• Prime vacancy rose to 7.5%, up from 1.2% six months prior, while secondary vacancy stabilised at 19%.
• New developments like 500 Pacific Highway and 88 Walker Street will add 20,000 sqm of prime office space over the next 18 months.
• Healthcare and education precinct is driving interest in the area, with Allity and Asterx relocating to A-grade space.
• Prime incentives have increased to 33%, contributing to a 11.9% drop in net effective rents.

Chatswood

• Vacancy has more than tripled to 15.1%, with sublease availability rising to 3%.
• Limited tenant activity and relocation of businesses have led to a negative net absorption of 5,810 sqm.
• Sublease vacancy has increased due to the availability of whole floors at Citadel Towers and Zenith Towers.
• Prime incentives have increased to 33%, with net effective rents declining to $342/sqm.

Macquarie Park

• Vacancy increased to 9.7%, with prime vacancy at 9.2% and secondary vacancy at 10.9%.
• Pent-up demand from 2020 has driven a 11% rise in leasing volumes in Q1 and Q2 2021.
• Occupiers are relocating from other precincts to Macquarie Park, seeking better connectivity and quality.
• Prime incentives have increased to 29%, with net effective rents decreasing slightly to $298/sqm.

Investment Activity

• Total investment in the North Shore markets reached $484.4 million in the first half of 2021, a 17% increase compared to the same period in 2020.
• Macquarie Park and North Sydney are the most active investment locations, accounting for 70% and 30% of investment volumes respectively.
• Domestic investors are increasingly dominating the market, with 85% of investment volumes attributed to them, a shift from the 66% seen in 2020.
• Key sales in the first half of 2021 include 60 Miller Street, North Sydney for $275 million and 37 Epping Road, Macquarie Park for $55 million.

Major Supply and Tenancy Developments

• New developments under construction include 500 Pacific Highway, 88 Walker Street, and 558 Pacific Highway, expected to add 20,000 sqm of prime office space.
• Major tenant commitments include Finclear at 118 Mount Street, Microbiogen at 78 Waterloo Road, and Allity at 601 Pacific Highway.

Conclusion

The North Shore office market is showing signs of recovery and resilience, with strong demand for premium-grade assets and a shift towards domestic investment. While vacancy rates have increased in some areas, the lack of new supply and the trend of "flight to quality" are expected to drive further absorption and reduce vacancy over the coming years. Incentives remain high, but with a stabilisation of prime yields, the market is well positioned for continued growth and investment activity.