North shore slow burn becomes red hot
Sydney’s north shore suburbs are riding an eight-year commercial property high, with office vacancy rates diving and yields continuing to tighten.
Tenants and investors are pouring across the Sydney Harbour Bridge in search of more affordable leasing conditions and greater investment returns compared to the CBD.
Yields for prime and core assets in Crows Nest, St Leonards, Chatswood, North Ryde and Macquarie Park are at their tightest since 2007, with North Ryde and Macquarie Park dipping below 7% for the first time in more than 10 years, according to a Knight Frank research report.
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Statistics show the north shore vacancy rate is at an eight-year low of 8.5%, due in part to the increased interest in the market and also because of stock withdrawal as a result of commercial properties being converted to residential.
As has been the case for several years, there remains a significant pool of unsatisfied capital looking for opportunities in the market
North Sydney is most in demand, with a prime grade vacancy rate of just 3.3%, while prime and secondary grade properties in Chatswood are at 6.8%.
The positive results come as investors continue to pay big dollars for offices in suburbs north of the bridge, highlighted by ACU’s $95 million purchase of 33 Berry St in North Sydney last month on a yield of less than 7%, and Centuria’s pending $86 million deal to buy 203 Pacific Highway in St Leonards, on a yield of around 8%.
Knight Frank NSW research director Nick Hoskins says he expects the upturn in the north shore market to continue into 2016.
“As has been the case for several years, there remains a significant pool of unsatisfied capital looking for opportunities in the market,” Hoskins says.
“Despite prime yields having already firmed, on average, 75bps below the 10-year average, it is anticipated that further yield compression will be recorded over the balance of 2015.”
We’ve also seen a number of new tenants enter the market to capitalise on the rental differential between St Leonards and nearby markets such as North Sydney
CBRE office services director Stefan Perkowski says St Leonards has become one of Sydney’s most sought after suburbs among office tenants, due to its price advantage and relative proximity to the CBD and other amenities.
“There is an inbuilt culture among many St Leonards tenants who like the work/life balance that the location affords, if they have a high proportion of staff living on the north shore,” Perkowski says.
“We’ve also seen a number of new tenants enter the market to capitalise on the rental differential between St Leonards and nearby markets such as North Sydney.”
“Rents for equivalent A-grade buildings (are) some $100-$150/sqm below that of North Sydney.”