no rth syd n e y coun ci l...2013/07/02 · no rth syd n e y coun ci l cbd working group report...

N O R T H S Y D N E Y C O U N C I L

CBD Working Group

Report CBD04 - 2 July 2013 Attachments:

1. Previous Report - 11 March 2013

SUBJECT: North Sydney Centre Commercial Market Demand Study AUTHOR: Mark Yee, Strategic Planner EXECUTIVE SUMMARY: At its meeting of 11 March 2013, Council’s Legal and Planning Committee considered a report regarding the “North Sydney Centre Commercial Market Demand Study”. The study was completed by Urbis and was jointly funded between North Sydney Council and the Property Council of Australia. The study forms the first stage of the overall review of the North Sydney Centre. The report highlights the key findings of the study and discusses the implications of these findings. The study provides information under the following headings:

- Literature review - North Sydney Office Market Profile - Tenant Sentiment Survey - Worker Sentiment Survey - Investor Sentiment Interviews - North Sydney Office Market Comparative Review - North Sydney Resident and Worker Profile - North Sydney Office Demand Forecasts - Development Constraints Analysis - Conclusions and Recommendations

Copies of the study were distributed at the last Working Group Meeting on 7 May 2013. The Legal and Planning Committee report is attached to this report for the information of Working Group members. Strategic Planning staff will briefly present the key points of this Study at the CBD Working Group meeting of 2 July 2013. RECOMMENDATION: 1. THAT the North Sydney Centre Commercial Market Demand Study report be received. Signed: Endorsed by: Manager Strategic Planning

Report of Mark Yee, Strategic Planner Re: North Sydney Centre Commercial Market Demand Study

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LINK TO DELIVERY PROGRAM The relationship with the Delivery Program is as follows: Direction: 3. Our Economic Vitality Goal: 3.2 North Sydney CBD is one of Australia’s largest commercial centres

BACKGROUND At its meeting of 11 March 2013, Council’s Legal and Planning Committee considered a report (Attachment 1) regarding the “North Sydney Centre Commercial Market Demand Study”. The study was completed by Urbis and was jointly funded between North Sydney Council and the Property Council of Australia. SUSTAINABILITY STATEMENT The sustainability implications were considered and reported on during the initiation phase of this project. DETAIL The North Sydney Centre Commercial Market Demand Study forms the first stage of the overall review of the North Sydney Centre. The report highlights the key findings of the study and discusses the implications of these findings. The study provides information under the following headings:

- Literature review - North Sydney Office Market Profile - Tenant Sentiment Survey - Worker Sentiment Survey - Investor Sentiment Interviews - North Sydney Office Market Comparative Review - North Sydney Resident and Worker Profile - North Sydney Office Demand Forecasts - Development Constraints Analysis - Conclusions and Recommendations

Copies of the study were distributed at the last Working Group Meeting on 7 May 2013. The Legal and Planning Committee report is attached (Attachment 1) to this report for the information of Working Group members.

DECISION OF 3626th

HELD ON 13 MAY 2013 COUNCIL MEETING

265. G04: Legal and Planning Committee Minutes - 6 May 2013

8. LP02: North Sydney Commercial Centre Study

Report of Mark Yee, Strategic Planner In May 2012, Council appointed Urbis to complete the “North Sydney Commercial Centre Study” (the study - Attachment 1). The study is an updated version of the 2004 “North Sydney Demand Study”, which was also completed by Urbis. The study was jointly funded between Council and the Property Council of Australia, as was the previous study. The study forms the first stage of the overall review of the North Sydney Centre. This review was prompted by Clause 28C(6) of North Sydney Local Environment Plan 2001, which required Council to review the controls once development exceeded an additional 200,000m2

The principal aims of the study were to provide Council with the following information:

of commercial floorspace under the plan. The review will analyse the existing state of the North Sydney Centre, and set further goals and strategies to ensure its future economic vitality.

• the current supply and occupancy of office space; • the attractiveness of North Sydney to occupiers; • identify issues faced by developers and investors; • identify need for additional office space; and • provide key recommendations to support the future economic vitality of the

North Sydney Centre. This report highlights the key findings of the study and discusses the implications of these findings. The study also makes a number of recommendations, the implications of which will be addressed in a later report to Council. A Councillor briefing to discuss these recommendations will be held before they are reported to Council. Council staff will also liaise with the Property Council of Australia. The report has been forwarded to the North Sydney CBD Working Group and, due to meeting scheduling, will be discussed in July 2013. Recommending: 1. THAT Council note the receipt of the North Sydney Commercial Centre Study. 2. THAT the North Sydney Commercial Centre Study inform the North Sydney Centre Review 2013, as endorsed at Legal and Planning Committee on 11 March 2013. 3. THAT a Councillor Briefing be held in May 2013 to discuss the findings and recommendations of the North Sydney Commercial Centre Study. Resolved to recommend: 1. THAT Council note the receipt of the North Sydney Commercial Centre Study. 2. THAT the North Sydney Commercial Centre Study inform the North Sydney Centre Review 2013, as endorsed at Legal and Planning Committee on 11 March 2013. 3. THAT a Councillor Workshop be held in late May 2013 to discuss the findings and recommendations of the North Sydney Commercial Centre Study. 4. THAT the authors of the Study be congratulated on the quality of the document. The Motion was moved by Councillor Reymond and seconded by Councillor Baker.

Councillor Yes No Councillor Yes No Gibson Y Morris Y Reymond Y Clare Absent Carr Absent Baker Y Bevan Absent Robertson Absent Butcher Absent Marchandeau Y Burke Absent Beregi Absent Barbour Absent

Item LP02 Legal and Planning Committee 6/05/13 N O R T H S Y D N E Y C O U N C I L

Report to General Manager Attachments:

1. North Sydney Commercial Centre Study

SUBJECT: North Sydney Commercial Centre Study AUTHOR: Mark Yee, Strategic Planner EXECUTIVE SUMMARY: In May 2012, Council appointed Urbis to complete the “North Sydney Commercial Centre Study” (the study - Attachment 1). The study is an updated version of the 2004 “North Sydney Demand Study”, which was also completed by Urbis. The study was jointly funded between Council and the Property Council of Australia, as was the previous study. The study forms the first stage of the overall review of the North Sydney Centre. This review was prompted by Clause 28C(6) of North Sydney Local Environment Plan 2001, which required Council to review the controls once development exceeded an additional 200,000m2 of commercial floorspace under the plan. The review will analyse the existing state of the North Sydney Centre, and set further goals and strategies to ensure its future economic vitality. The principal aims of the study were to provide Council with the following information:

- the current supply and occupancy of office space; - the attractiveness of North Sydney to occupiers; - identify issues faced by developers and investors; - identify need for additional office space; and - provide key recommendations to support the future economic vitality of the North

Sydney Centre. This report highlights the key findings of the study and discusses the implications of these findings. The study also makes a number of recommendations, the implications of which will be addressed in a later report to Council. A Councillor briefing to discuss these recommendations will be held before they are reported to Council. Council staff will also liaise with the Property Council of Australia. The report has been forwarded to the North Sydney CBD Working Group and, due to meeting scheduling, will be discussed in July 2013. RECOMMENDATION: 1. THAT Council note the receipt of the North Sydney Commercial Centre Study. 2. THAT the North Sydney Commercial Centre Study inform the North Sydney Centre Review 2013, as endorsed at Legal and Planning Committee on 11 March 2013. 3. THAT a Councillor Briefing be held in May 2013 to discuss the findings and recommendations of the North Sydney Commercial Centre Study.

Report of Mark Yee, Strategic Planner Re: North Sydney Commercial Centre Study

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4. THAT a further report be made to Council analysing and investigating the recommendations within the North Sydney Commercial Centre Study. 5. THAT the North Sydney Commercial Centre Study be reported to the CBD Working Group on 2 July 2013. Signed: Endorsed by: Manager Strategic Planning


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LINK TO DELIVERY PROGRAM The relationship with the Delivery Program is as follows: Direction: 3. Our Economic Vitality Goal: 3.2 Ensure North Sydney CBD is one of Australia’s largest commercial centres BACKGROUND In May 2012, Council appointed Urbis to complete the “North Sydney Commercial Centre Study”. The study is an updated version of the 2004 “North Sydney Demand Study”, which was also completed by Urbis. The study was jointly funded between North Sydney Council and the Property Council of Australia, as was the previous study. The study forms the first stage of the overall review of the North Sydney Centre. This review was prompted by Clause 28C(6) of NSLEP 2001, which required Council to review the controls once development exceeded an additional 200,000m2 of commercial floorspace under the plan. The review will analyse the existing state of the North Sydney Centre, and set further goals and strategies to ensure its future economic vitality. The principal aims of the study were to provide Council with the following information:

- the current supply and occupancy of office space; - the attractiveness of North Sydney to occupiers; - identify issues faced by developers and investors; - identify need for additional office space; and - provide key recommendations to support the future economic vitality of the North

Sydney Centre. SUSTAINABILITY STATEMENT This report is for information purposes only; a sustainability assessment was not undertaken. DETAIL The North Sydney Centre consists predominantly of the commercial core with mixed use properties, buildings and its periphery. The area is shown on the following map:


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The study provides information under the following headings:

- Literature review - North Sydney Office Market Profile - Tenant Sentiment Survey - Worker Sentiment Survey - Investor Sentiment Interviews - North Sydney Office Market Comparative Review - North Sydney Resident & Worker Profile - North Sydney Office Demand Forecasts - Development Constraints Analysis - Conclusions & Recommendations

The key points from the study are provided below, as well as analysis of their implications. 1. Literature Review The first section of the study summarises the planning framework for the North Sydney Centre through a literature review. This review summarises the implications of the following documents:

Metropolitan Plan for Sydney 2036 Draft Inner North Subregional Strategy 2007 North Sydney Community Strategic Plan 2009/10-20/1920 North Sydney Local Development Strategy 2009 North Sydney Residential Strategy 2009


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North Sydney Public Domain Strategy North Sydney Demand Study 2004 North Sydney LEP 2001 North Sydney DCP 2002 Draft North Sydney LEP 2012 Draft North Sydney DCP 2010

The review notes that North Sydney forms part of ‘Global Sydney’ within the Global Economic Corridor under the “Metropolitan Plan for Sydney 2031”. North Sydney being part of ‘Global Sydney’ is key to understanding the NSW Government’s vision for the North Sydney Centre, being a major commercial centre. The study also highlights the relevant Council vision for the centre. These documents identify the North Sydney Centre as a commercial centre with mixed use development located on the periphery of the commercial core. It should be noted that since the study was finalised the NSW Government released the draft “Metropolitan Strategy for Sydney to 2031”. When finalised, the strategy will replace the existing “Metropolitan Plan for Sydney to 2036”. The draft strategy continues to identify North Sydney as being part of “Global Sydney”, with the primary function of being a commercial centre. 2. Profile of North Sydney Centre The study provides an overall profile of the North Sydney Centre. This profile is vital for understanding the existing state of the North Sydney Centre. 2.1 Supply of Stock North Sydney is the largest of Sydney’s non-CBD office markets and the seventh largest office market in Australia, with total office stock of approximately 860,000m2. The Sydney CBD is still substantially larger than North Sydney with 4,903,000m2 of floorspace, with Macquarie Park not far behind North Sydney with 808,000m2. Other key competing markets in Sydney’s north such as Crows Nest / St Leonards and Chatswood are approximately one third of the size of North Sydney. This is demonstrated in the following table:


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Whilst significantly smaller than the Sydney CBD, the North Sydney Centre remains one of Australia’s largest office markets. However, it is anticipated that Macquarie Park / North Ryde will soon overtake North Sydney as Sydney’s 2nd largest office market.

Whilst North Sydney should be aware of Macquarie Park / North Ryde office market, Council should not attempt to compete with this location in trying to deliver new office floorspace. The Macquarie Park / North Ryde area has substantially more developable land than North Sydney. It has a predominant car focus with relatively relaxed car parking provisions compared to North Sydney and the City of Sydney. Council’s focus should therefore be on providing available quality floorspace in the North Sydney Centre.

2.2 Grade of Stock Since 2000, there has been a significant shift in the grade of office stock in North Sydney with the most notable shifts being:

– fall in A Grade from 38% to 22% – increase of C Grade from 11% to 21% – increase of D Grade from 1% to 3%

This shows that there has been an increase in the proportion of lower grade stock. Of particular concern is the fact that Premium grade space accounts for just 4% (36,000m2) of total floorspace.

The fall in the quality of office space is considered to be the greatest challenge for North Sydney in the future. North Sydney is seen as somewhat of a premium market and an alternative to the Sydney CBD. However, if the North Sydney Centre fails to provide quality office space, it may risk losing quality tenants to other locations.

2.3 Age of Stock There is a large portion of older building stock, with 68% of floor space and 66% of buildings being developed between 1971 and 1991. Development from 1991 onwards represents only 20% of floor space and 13% of buildings.

This fall in development largely reflects the diminishing availability of developable land within the North Sydney Centre. It should be noted that there is a direct correlation between


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the age of stock and the grade of stock. 2.4 Floorplates The average floorplate size of buildings with North Sydney is 668m2. There is a general trend for tenants to seek larger floorplates and fewer floors to maximise their efficiency, with the ideal floorplate size considered to be over 1,000m2. North Sydney has a relatively small proportion of large floorplates with only 12% of buildings having floorplates over 1,000m2. It should be noted that recent developments in the Macquarie Park / North Ryde area are able to provide floorplates exceeding 2,000m2. It is considered that the prevalence of small flooplates in North Sydney is largely a result of the older office stock in North Sydney. 2.5 Vacancy Rates There has been a consistent fall in vacancy from 11% in January 2010 to 7% in January 2012. There is a current vacancy of 7.4% (July 2012) with only Macquarie Park / North Ryde having a lower vacancy rate (6.7%). The current vacancy rate in North Sydney reflects the generally low vacancy trend for commercial buildings throughout Sydney. The weakest CBDs are other North Shore locations, with Chatswood having the highest vacancy rate of 13.7% and St Leonards / Crows posting a vacancy rate of 10.7%. Chatswood’s high vacancy rate is particularly interesting considering that there has been a reduction in the amount of commercial floorpace in this area over the last 10 years to allow greater residential development. 2.6 Major Tenants There is currently a broad mix of tenants within the centre, the insurance, finance, government, telecommunications, infrastructure, information technology and construction industries.


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This mix of tenants is different to previous periods, especially in the 1990s and early 2000s when North Sydney had a significantly large portion of IT related tenants.

This mix of tenants and the industries they are involved in represent a healthy office market.

2.7 Rents and Returns The study identifies that the Sydney CBD has the highest rents in the Sydney market. North Sydney has the highest median rents outside the Sydney centre and is significantly higher than other locations such as Parramatta and Macquarie Park. This demonstrates the high demand for floorspace in the North Sydney Centre and its desirability in comparison to these other office locations.

Of interest is the Sydney CBD ‘Western Corridor’, which is defined as the area west of York Street as far south as Liverpool Street and adjoins the Barangaroo redevelopment area. This area displays rental rates that are only slightly above those in North Sydney. A number of participants in the investor interviews indicated that they viewed the Western Corridor of Sydney as the most competitive office market to North Sydney.

Total return represents both the income return accrued from rent and the capital gains on


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property. In 2011 the North Sydney commercial office market performed well with a total return of 10.3% per annum. In comparison, other CBD locations such as St Leonards / Chatswood had a total return of 10.1% and North Ryde / Macquarie Park had a total return of 8.6%.

3. Market research with landowners/tenants/employees

To gain a greater insight into the North Sydney Centre, significant research was conducted with landowners, workers, tenants, key investors and agents. An online survey was conducted with the tenants and workers of North Sydney. To promote this survey, flyers were distributed by Urbis throughout the North Sydney Centre. Targeted interviews were also conducted with investors and agents. These interviews were conducted with parties who were identified as key players within the North Sydney Centre.

3.1 Tenant Survey For the tenant survey, a total of 80 qualified responses were received. The most prominent factors influencing the choice of office location were the “availability of public transport” (85% of respondents) and “proximity to the Sydney CBD” (76%). “Being close to clients/customers”, being in a “desirable location for attracting new staff”, and “fitting in with your corporate image” also rated well, each accounting for around 55% to 59% of respondents. In relation to the suitability of North Sydney as a location for their business, all except one respondent indicated that it was either an “acceptable” or “ideal” location for their business. Other key locations suitable for the respondents business included Sydney CBD (90% viewed it as suitable) and other northern Sydney locations including St Leonards (70%), Chatswood (55%) and North Ryde / Macquarie Park (32%). A large portion of recommendations made regarding the North Sydney Centre related to better provision of retail services, improvements relating to parking and improvements to transportation. Specifically:

16% of comments related to the improvement of retail provision, including the variety of stores;

15% of comments suggested cheaper and/or more parking for staff (an additional 6% of comments suggested better and/or cheaper short-term parking for visitors);

9% of comments suggested better provision of bars/cafes; and 8% suggested improvements to public transportation, including linkages to other train

lines, more services, and more on time services. 3.2 Worker Survey There were over 700 responses to the worker survey. The surveys revealed a high level of satisfaction from workers in North Sydney with 56% being ‘satisfied’ and 36% being “fairly satisfied” with North Sydney as a location. Only 8% of workers were ‘unsatisfied’ about working in North Sydney. When asked for their preferred location of workplace, the Sydney CBD was the most preferred location. North Sydney was the second highest ranked preferred location of workplace and had the highest proportion of 2nd preferred location. This is illustrated as following:


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Other locations such as Chatswood or St Leonards were well behind in terms of preferred workplace. This follows the general trend that North Sydney is seen as an alternative to the Sydney CBD and is generally preferred to other office locations within Sydney. In terms of expenditure of workers, “clothing and accessories” represented the area where there was the highest expenditure. However, interestingly 19% of respondents felt that ‘clothing’ store provision was insufficient and 16% of respondents felt that ‘sporting retail’ provision was lacking.

This demand for retail is interesting as North Sydney has generally struggled to attract major retail tenants, as most shoppers in the region tend to head to shopping centres in the Sydney CBD or Chatswood. Whilst it would be difficult for North Sydney to compete with these established retail centres to attract weekend shoppers, it will be important to maintain a level in retail within North Sydney to the meet the needs of the workforce.

3.3 Investor and Agent Survey

Whilst investors were the focus for these interviews, a range of other groups such as real estate agents, owners of development sites, Australian Catholic University and other interested parties were interviewed. These interviews covered a number of key topics and identified a number of interesting points.

These interviews revealed that North Sydney would be likely to lose some potential tenants to North Ryde due to the larger floor plates, if larger floor plates cannot be provided within North Sydney. However, it was generally considered that North Sydney doesn’t compete directly with North Ryde and is unlikely to attract tenants from this area.

The ‘Western Corridor’ was identified as an attractive alternative to North Sydney particularly based on price and availability of contiguous floorspace. When developed, Barangaroo would likely consist of existing tenants moving to this location, rather than new tenants entering the market. This provides a significant threat to North Sydney if tenants are unable to find suitable floorspace in North Sydney.

There was a mixture of attitudes regarding the exclusion of residential development in the commercial core. Some respondents raised concern that residential development in the core may result in a similar situation to Chatswood, where it was considered that too much


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residential development was constructed in the commercial district. However, all respondents agreed that residential development was appropriate at least on the periphery of the core and would help stimulate the area outside of business hours.

The study also summarises a number of comments related to:

Quality of office supply Finance constraints Residential development Vibrancy and identity Streetscape and public domain Funding of public domain improvements Retail provision Strata fragmentation and building quality Car parking costs Concerns over development charges Planning controls and relations with Council Environmental upgrade agreements Comparison with other office markets

4. Comparative Analysis with Competing Centres

To understand North Sydney’s position in comparison to other commercial centres, the study undertook an analysis of the strengths and weaknesses of the North Sydney CBD against its major competitors including Sydney CBD, Chatswood, Crows Nest / St Leonards, Macquarie Park and Parramatta. Key points are identified as follows:

4.1 Sydney CBD Approximately 112,000m2 of commercial space is currently under construction in the Sydney CBD, within 5 developments due for completion by late 2013. Development at Barangaroo will provide approximately 270,000m2 commercial space to enter the market over the next five years.

4.2 Chatswood Chatswood has the highest vacancy rate in Sydney (13.7%). Over the last 10 years there has been a decrease of 15.5% (4,472m2) in commercial floorspace. Chatswood is considered to be an interesting case study in which commercial floorspace has been reduced to allow for greater residential development.

4.3 Macquarie Park The ‘Macquarie Park Corridor’ incorporates the business park precincts of Macquarie Park and North Ryde. Most commercial development in the area has been completed in the last 10 years. There are 10 new projects with a combined NLA of over 230,000m2 mooted for construction in the coming years.

4.4 Parramatta Since the early 2000s, a number of government agencies have relocated their head offices to


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Parramatta creating a “government centre”.

As at July 2012, Parramatta had a very low A Grade vacancy rate of 2.2%, wtith B Grade vacancy also low at 5%. However, that vacancy is significantly higher in the C and D Grade markets at 16.2% and 15.1% respectively. Overall vacancy stood at 8.7%.

This variance in vacancy rate is significant as there is a relatively even mix in the grade of office buildings in Parramatta, which is as follows:

A Grade – 33.6% B Grade – 23.2% C Grade – 21.8% D Grade – 21.4%

From the comparison with the other centres, the study identifies the following attributes that North Sydney should focus on developing strategies for:

The central location of North Sydney CBD within the Global Economic Arc; Access to a highly qualified white collar workforce; Competitiveness of rental levels in North Sydney versus Sydney CBD locations; Current and future improved accessibility to rail transport, including future

accessibility to workers located in the North West Growth Centre on completion of the North West Rail Link (this is not a unique offer, however, is an important selling point);

High levels of satisfaction of current workers (based on survey results); Opportunities for new development including promoting the current proposed

developments that will improve the mix of office accommodation; and Promote any future public domain improvements.

5. Resident and Worker Profiles 5.1 Resident Profile As of 2006, the population in the North Sydney LGA was 56,300. Growth in the North Sydney LGA is expected to be moderately lower than the Sydney average between 2006 and 2036, averaging at 1.3% per annum. Compared to the rest of Sydney, North Sydney has a considerably higher proportion of residents aged between 25-39 year (37% compared to 23%) and a lower proportion of residents aged 0-13 (9% compared to 18%). Incomes within the North Sydney LGA are comparatively higher compared to the rest of Sydney, with a significant proportion of households earning salaries in excess of $130,000 per annum. In terms of industry, approximately 94% of working residents are in white collar professions, compared to the Sydney average of 74%. 5.2 Employee Profile Workers within the North Sydney LGA and specifically within the North Sydney Centre are more likely to be in white collar professions. Workers also typically earn higher incomes compared to the Sydney average, with 22% of workers earning in excess of $104,000 per


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annum compared to the overall Sydney average of 9%. A significant portion of workers reside within relatively close proximity to North Sydney on the North Shore or Northern Beaches. This is an important factor as these areas have a high proportion of white collar workers for businesses to draw on. However, a large volume of workers also reside in a wide variety of locations throughout Sydney and are dependent on good public transport links to connect them to North Sydney. As such, maintaining excellent public transport linkages is vital for tenants in North Sydney being able to draw from a large base of workers. 6. Office Demand Forecasts The study forecasts that growth rates for the North Sydney Centre are below those identified for the rest of Sydney. This indicates that North Sydney is forecasted to lose market share to other office locations. Locations such as Parramatta, North Ryde and Norwest will most likely capture a higher proportion of all growth into the future, as these locations have fewer limitations on the availability of supply. The study states that over the next 20 plus years, the North Sydney Centre is likely to require a net increase of between 65,000m2 and 135,000m2 of Net Lettable Area. It is considered that forecasted demand can largely be met through the developments which were approved under the previous Part 3A system. These developments are as follows:

However, the actual level of new stock will have to exceed this underlying level of demand as there will also be the requirement to provide a higher quality standard of accommodation that could only be achieved through new development. This will in effect require a replacement of older redundant stock over the next 10 to 20 years. Replacing this older redundant stock will be a significant challenge for the North Sydney Centre in the future. Given the high cost of redevelopment, planning incentives such as increased building heights, floor space bonuses and setback relaxation may be necessary to encourage such redevelopment. 7. Development Constraints Analysis A review of the constraints to future development in the North Sydney Centre was provided. The study notes that essentially all sites in the centre had been built on and therefore for additional floorspace to be provided, it will require the redevelopment of existing sites.


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The study identifies that the key constraints for redevelopment are parcel size and ownership fragmentation. 7.1 Parcel Size The study notes that most larger sites within the centre have been built close to their development potential and are some time off from reaching the end of their economic life. Most of the lower grade stock is situated on small lots with small floorplates. Therefore, if the quality of building stock is to improve, it will likely require the amalgamation of these smaller sites. However, site amalgamations are difficult to achieve. Therefore to encourage redevelopments the study states that Council may have to consider development incentives to encourage amalgamations. 7.2 Ownership Fragmentation The issue of strata ownership was also identified as a development constraint. There is a number of office buildings within the North Sydney Centre which have been strata sub-divided. However, the study notes that the Winten Property Group (177-199 Pacific Highway) and the Laing O’Rourke (90-100 Mount Street) development sites have both been amalgamated with the inclusion of significant strata title properties. 8. Residential development As noted in the Investor and Agent Survey section there is a mixture of attitudes regarding the exclusion of residential development in the commercial core. Further to the survey the study analysed the potential retail market generated by an office and a residential apartment development in a building assumed to have a gross floor area of 20,000 sq.m. Based on the scenarios analysed, retail turnover generated by office workers is likely to be 36% to 56% higher than residents. This indicates that office uses are more economically important overall to retailers than residents within the North Sydney CBD. The study noted however that this worker expenditure is concentrated during core business hours and that there is a higher likelihood that residents will direct more expenditure to retailers close to their homes after core business hours. The overall benefit to retailers of opening longer hours is therefore unlikely to be realised unless they can attract a larger after hours market including the retention of some additional worker after hours spend and resident spend from a broader surrounding area. Residential development, at the expense of existing commercial tenancies, on its own is unlikely to produce a significant improvement in the performance of retail businesses within North Sydney.

9. Conclusion The study revealed that overall the North Sydney Centre remains strong and competitive.


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There is currently a high demand for floorspace, which is demonstrated in the low vacancy rate, strong rents and competitive returns for investors. The key factors which make North Sydney such a successful market appear to be its location and access to public transport. These key factors will remain and should assist in North Sydney remaining a highly sought commercial market. From the research it is evident that North Sydney is generally seen as an alternative to the Sydney CBD, with more affordable rents. However, the availability of quality floorspace will be the greatest challenge for North Sydney in the future. Compared to the rest of Sydney, North Sydney has a higher proportion of lower grade stock with significantly smaller floorplates. There is a lower demand for low grade stock and the prevalence of such buildings is not consistent with image of North Sydney being a premium market. As key competing markets such as the ‘Western Corridor’ and Macquarie Park will continue to introduce new high grade commercial floorspace, it is imperative for North Sydney to improve the quality of floorspace within the centre. Should quality floorspace fail to be delivered, it could threaten North Sydney’s standing within Sydney’s office market. Given the projected demand for additional floorspace is relatively low in comparison to other commercial centres, it is considered that most of this additional floorspace can, and should, be provided within the existing centre. Whilst the majority of this floorspace can be provided in the three major developments approved under the Part 3A system, any further floospace will require the redevelopment of existing sites. However, the study notes that there are a number of constraints that may restrict redevelopment. As such, the review of the North Sydney Centre should involve significant work to evaluate the older stock within the North Sydney Centre. This should include identifying sites which may be suitable for development and investigation into possible planning incentives to encourage such redevelopment.

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