2023-10-05-莱坊-North_Shore_Office_Market_September_2023_9页_4mb

North Shore Office Market Summary - August 2023

Core Content Overview

The North Shore office market report for August 2023 provides a detailed analysis of the current state of the market across key sub-regions: North Sydney, St Leonards, Chatswood, and Macquarie Park. It highlights occupier demand, vacancy rates, rental growth, development pipeline, and investment activity, with a focus on the premium market's resilience and the challenges faced by secondary markets.

Main Market Trends

North Sydney

• Occupier Demand: Driven by the "flight to quality" trend, with premium assets outperforming secondary stock.
• Vacancy Rates:
  • Premium: 1.5% (down from 2.9%)
  • Secondary: 26.2%
  • Total: 22.7%
• Recent Completion: 2-4 Blue Street (14,500sqm) by Lendlease, first completion since 2020, now at 50% occupancy.
• Lease Deals:
  • Professional services: 28% of deal activity
  • Financial and insurance services: 24%
  • Tech sector: 23%
• Rental Growth:
  • Prime: 3.2% over 12 months to $894/sqm
  • Secondary: No growth, averaging $731/sqm
• Incentives: Stabilised around 33-38%, resulting in minimal effective rent growth.

St Leonards

• Occupier Demand: Subdued since the pandemic, with vacancy reaching a record high of 24.3%.
• Vacancy Rates:
  • Prime: 26.6% (up from 19.1%)
  • Secondary: 22.9% (up from 21.9%)
• Development Impact: 558 Pacific Highway added 16,738sqm of prime space.
• Rental Growth:
  • Prime: 1.2% to $654/sqm
  • Secondary: 0.9% to $573/sqm
• Future Outlook: Potential for rent growth with the Crows Nest Metro station opening in 2024.

Chatswood

• Vacancy Decline: Only North Shore market to see a fall in vacancy, down to 16.1% from 18.3%.
• Net Absorption:
  • Prime: 3,653sqm
  • Secondary: 2,143sqm
• Rental Growth:
  • Prime: 5.1% to $622/sqm
  • Secondary: 2.0% to $513/sqm
• Leasing Activity: Tech and professional services dominate, contributing 58% of take-up.
• Incentives: Increased slightly to 33-35%, softening effective rent growth.

Macquarie Park

• Vacancy Levels: Reached a record high of 15.3%, still lower than other North Shore markets.
• Vacancy by Grade:
  • Prime: 14.7% (up from 12.2%)
  • Secondary: 16.7% (up from 13.9%)
• Net Absorption: Negative for both grades, with prime at -24,000sqm and secondary at -12,981sqm.
• Development Pipeline:
  • Forecast to deliver ~45,000sqm of prime space by end of 2023.
  • Key projects include Array, Macquarie Exchange Stage 1, and M_Park Stage 1.
• Rental Growth:
  • Prime: 5.2% to $453/sqm
  • Secondary: 3.4% to $375/sqm
• Yields:
  • Prime: 5.8%
  • Secondary: 7.1%
  • Spread: 130bps, a decade high.

Key Insights

• Flight to Quality: Premium assets in North Sydney continue to attract strong occupier demand, leading to lower vacancy rates.
• Development Activity: New developments are expected to increase supply, particularly in North Sydney and Macquarie Park, with some projects nearing completion.
• Rental Growth: Positive in Chatswood and Macquarie Park, but subdued in St Leonards due to high vacancy.
• Investment Activity: Subdued deal flow, with only one transaction settled in six months. Yields have softened, with prime and secondary markets expanding significantly.
• Future Outlook: Improved economic conditions and the completion of new infrastructure projects may stimulate deal activity and rental growth in the coming months.

Investment Highlights

• Recent Sales:
  • 5 Eden Park Drive, Macquarie Park: Sold for $80.8M at 5.25% yield.
  • 50 Miller Street, North Sydney: Sold for $148M at 5.50% yield.
  • 73 Miller Street, North Sydney: Sold for $400M at 4.61% yield.
• Development Pipeline:
  • Includes projects like 2-4 Blue Street, 88 Walker Street, and Victoria Cross OSD.
  • Most developments are expected to be completed by 2025 or later.

Conclusion

The North Shore office market is characterised by a strong premium market with resilience and demand, while secondary markets face challenges due to high vacancy and subdued activity. Development activity is expected to increase supply, which may affect yields and rental growth. With improved economic conditions and new infrastructure, there is potential for a recovery in the coming months.