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RESEARCH Investment volumes across the North Shore markets totalled $2.14 billion, with over 80% of capital coming from offshore buyers in the 12 months to January 2019. North Sydney awaits the completion of over 145,000 sq m of new office space, which will bolster absorption levels and deliver new entrants to the market over the next two years. Gross face rents in North Sydney continued to rise in conjunction with falling incentives over the past 12 months. The short term supply drought will see rental growth remain strong.

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Page 1: RESEARCH - Knight Frank...RESEARCH North Sydney awaits the completion Investment volumes across the North Shore markets totalled $2.14 billion, with over 80% of capital coming from

RESEARCH

Investment volumes across the

North Shore markets totalled $2.14

billion, with over 80% of capital

coming from offshore buyers in the

12 months to January 2019.

North Sydney awaits the completion

of over 145,000 sq m of new office

space, which will bolster absorption

levels and deliver new entrants to

the market over the next two years.

Gross face rents in North Sydney

continued to rise in conjunction with

falling incentives over the past 12

months. The short term supply drought

will see rental growth remain strong.

Page 2: RESEARCH - Knight Frank...RESEARCH North Sydney awaits the completion Investment volumes across the North Shore markets totalled $2.14 billion, with over 80% of capital coming from

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RESEARCH NORTH SHORE OFFICE MARCH 2019

Source of Map: Knight Frank

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Nest

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Source of Map: Knight Frank

North Sydney Macquarie Park/North Ryde

100 Mount St - 40,600m² [NBN Co]^ 45-61 Waterloo Road - Bld C - 35,000m² [GPNSW] 11-17 Khartoum Rd - 52,000m²

Dexus - Q2 2019 - 85% committed John Holland - Q4 2019 - 70% committed Stockland - Mooted

1 Denison St - 65,021m² [Nine Entertainment]# Stage 2 97 Waterloo Rd -15,000m² [Schneider] Epicentre at Riverside, 6-8 Julius Ave - 34,194m²

Winten Property - H2 2020 - 50% committed Goodman - H2 2020 ISPT - Mooted

118 Mount St - 21,000m² [Zurich] 39 Delhi Rd - 30,000m² 45-61 Waterloo Road Bld - A,B,D,E,F - 82,000m²

Zurich - H2 2020 - 75% committed Stockland - Mooted John Holland - Mooted

73 Miller Street - 19,000m² 1 Rivett Rd (Stage 2) - 11,380m²

ProeprtyLink - H1 2020 Pathway Property - Mooted

396 Lane Cove Rd - 76,100m²

Crows Nest/St Leonards Frasers Property / Winten Property Group - Mooted

472-486 Pacific Hwy - 4,600m2 29-35 Epping Rd -14,500m²

Mirvac - Q4 2019 Harvey Norman Holdings - Mooted

7 RNS Hospital site - 25,000 m² [NSW Govt. 100%] 271 Lane Cove Rd - c.34,000m²

NSW Government - H12021 Mirvac - Mooted

88 Christie St (Fronting Pacific Hwy) - 17,000m²** 8-10 University Ave - c.50,000m² *

JQZ - 2020+ Macquarie University - Early Feasibility

Lot 3, Broadcast Way, Artarmon - 14,000m² >

DA Approved Site

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Page 3: RESEARCH - Knight Frank...RESEARCH North Sydney awaits the completion Investment volumes across the North Shore markets totalled $2.14 billion, with over 80% of capital coming from

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Over 145,000 sq m of new and refurbished office stock in North

Sydney is set to come online over

the next two years, with 50%

already pre-committed this expected to increase over the next

six months.

St Leonards recorded its highest six monthly absorption rate since

2006, with 11,512 sq m of positive

net absorption recorded over the

six month period to January 2019.

Prime and secondary markets in Chatswood recorded net effective

rental growth of 12.1% and 9.5%

respectively over the past 12

months.

Macquarie Park recorded its lowest overall vacancy rate since

2005 of 4.8%, down from 5.6%,

six months prior.

Record development activity Although no new supply was added to

the North Sydney market in 2018, the

precinct is transforming. Over the next

two years, the 145,000 sq m of

commercial works currently in the

pipeline is due to reach completion. The

three major projects under construction;

100 Mount Street (41,600 sq m, 85%

pre-committed to NBN Co and Laing

O’Rourke - Q2 2019), 1 Denison Street

(65,021 sq m, 30% pre-committed to

Nine Entertainment and SAP - Mid

2020) and 118 Mount Street (21,000 sq

m, 75% pre-committed to Zurich—Late

2020).

In addition to new development,

landlords are repositioning existing

assets with major refurbishment plans

also underway. 73 Miller Street (15,000

sq m) is expected to be withdrawn from

mid-2019 to undergo a full

refurbishment, including an expansion in

its office floor area to 17,500 sq m when

it comes back online from mid-2020.

The refurbishment will see major tenant

NSW Department of Health relocate to

100 Christie Street in St Leonards on a

short-term lease.

TABLE 1

North Shore Office Market Indicators as at January 2019

Market Grade

Total

Stock

(sq m)^

Vacancy

Rate

(%)^

Annual Net

Absorption

(sq m)^

Avg Net

Face Rent

($/sq m)

Outgoings

($/sq m)

Average

Incentive

(%)*

Core Market

Yield (%)

North Sydney Prime 262,215 3.5 12,781 792 133 21.4 4.75 - 5.50

North Sydney Secondary 547,215 8.3 -16,867 653 129 19.9 5.25 - 5.50

North Sydney Total Market 809,430 6.8 -4,086 698 131 20.4 4.75 - 5.50

Crows Nest/St Leonards Prime 102,699 1.9 14,187 596 130 21.3 5.25 - 6.00

Crows Nest/St Leonards Secondary 204,182 8.2 415 540 105 22.3 5.75 - 6.25

Crows Nest/St Leonards Total Market 306,881 6.1 14,602 559 118 21.9 5.25 - 6.25

Chatswood Prime 157,412 3.9 4,000 539 128 21.3 5.25 - 6.00

Chatswood Secondary 121,507 9.1 -2,355 470 107 22.0 5.50 - 6.00

Chatswood Total Market 278,919 6.2 1,645 509 119 21.6 5.25 - 6.25

Macquarie Park Prime 644,824 3.5 3,582 398 100 22.0‡ 5.75 - 6.00

Macquarie Park Secondary 214,210 8.7 725 335 100 20.0‡ 6.00 - 6.50

Macquarie Park/North Ryde Total Market 859,034 4.8 4,307 382 100 21.5‡ 5.75 - 6.50

Source: Knight Frank Research/PCA * Incentives are on a Gross basis ‡ Incentives are on a Net basis ^ As at January 2019

Note. Average data is on a weighted basis. Yield ranges reflect the average lower and upper yields for a select basket of office assets in each market and grade

Grade: Prime includes modern and A-Grade stock whilst Secondary includes B, C and D quality Grade.

Senior Analyst

-40,000

-20,000

0

20,000

40,000

60,000

80,000

Jan-0

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Gross Supply Withdrawals Net Supply

The boom in new developments over the

coming two years represents the largest

supply addition over any two year period

for the North Sydney market. The last

record period was between 2009 and

2010 when 78,000 sq m was added.

Although new supply will see a short-

term rise in backfill space, it is expected

to be a drawcard for tenants relocating

from neighbouring North Shore markets

and the Sydney CBD.

FIGURE 1

North Sydney Office Supply Per six month period (000’ sq m)

Source: Knight Frank Research/PCA

Page 4: RESEARCH - Knight Frank...RESEARCH North Sydney awaits the completion Investment volumes across the North Shore markets totalled $2.14 billion, with over 80% of capital coming from

4

RESEARCH NORTH SHORE OFFICE MARCH 2019

(5,600 sq m), Nine Entertainment (15,500

sq m), NBN (20,000 sqm), Lang O’Rouke

(4,600 sq m) and Zurich (15,750 sq m),

there are a number of large tenant

mandates in the market that will have

positive implications for absorption levels

over the next 24 months. Tenants

currently seeking options in North Sydney

include Ooh Media (5,000 sq m), UGL

Group (7,500 sq m), Microsoft (10,000 sq

m) and Fairfax Media (5,000 sq m).

Vacancy remains below historical average The North Sydney overall vacancy rate

increased slightly in the six months to

January 2019 from a 16 year low of 6.3%

to 6.8%. Tenant relocation and negative

absorption over the second half of 2018

has underpinned the uptick in vacancy.

Whilst vacancy has increased, it is still

182bps below the 10-year average of

8.6%.

In the prime market, vacancy levels

increased from 2.1% to 3.5% in the six

months to January 2019. Within the prime

market, Premium Grade vacancy has

climbed from 1.9% to 6.0%, although this

has stemmed soley from sublease

vacancy. Similar to premium grade

vacancy, available sublease space has

increased A Grade vacancy rate by 90bps

to 3.1%, as at January 2019. The

secondary market however remained

static with vacancy unchanged at 8.3%.

Looking ahead, with the strong absorption

levels on the horizon and current level of

large tenant enquiry we anticipate overall

vacancy to trend towards 6% over the

next twelve months before incoming new

supply in 2021 results in a slight upswing

in the headline rate.

Tenant relocations temper absorption levels Absorption levels across the North

Sydney market in the six months to

January 2019 measured negative 4,644

sq m, resulting in negative absorption

annually of 4,086 sq m. Whilst the first

half of 2018 saw strong absorption levels

in the prime market of 16,347 sq m, this

was not the case in the second half of

2018 with negative absorption of 3,566

sq m, which primarily stemmed from

MasterCard vacating its largest North

Sydney office at 100 Arthur Street and

relocating to 72 Christie Street, St

Leonards.

In the secondary market negative

absorption levels were recorded for the

sixth consecutive period, with absorption

totaling negative 1,078 sq m for the six

months to January 2019. The negative

absorption levels continue to be driven

by the withdrawals of stock for

alternative uses. The withdrawal of 160

Pacific Highway (1,000 sq m) for

residential conversion, in addition to

MasterCard vacating its second (smaller)

office location in North Sydney at 165

Walker Street, were the catalyst for the

inflated negative absorption over the

period.

Pre-commitments to bolster future absorption New supply over the next two years will

see over 145,000 sq m added across

four developments. The level of pre-

commitment has already reached 50%

and based on current demand levels,

potentially could be fully committed prior

to practical completion. In addition to

the major pre-commitments from SAP

FIGURE 4

Average Core Market Yields North Sydney

Source: Knight Frank Research Source: Knight Frank Research/PCA Source: Knight Frank Research

Rental growth continues Low prime vacancy in North Sydney, in

conjunction with office rents running at a

28% (gross basis) discount to the

Sydney CBD, has underpinned prime

rental growth. Average prime gross face

rents have increased by 4.7% over the

past year to $925/sq m ($792/ sq m net

face) as at January 2019. In addition,

average prime incentives dropped 160

bps to 21.4%, resulting in gross effective

rental growth of 8.6% YoY.

In the secondary market, average gross

face rents have risen by 5.5% YoY to

$782/sq m ($653/sq m net face) as at

January 2019. Average secondary

incentives have dropped from 22% to 19

-20% YoY, as at January 2019, boosting

gross effective rents by 8.3% to measure

$626/sq m.

Record level of investment Investment volumes into the North

Sydney office market in 2018 reached

the highest level in a decade with $1.58

billion transacting, a 90% increase on

2017 volumes. This was driven mainly by

offshore capital, accounting for 92% of

total volumes.

The strong investment volumes and

confidence in the North Sydney market

has fuelled yield compression. As at

January 2019, prime assets in North

Sydney average 5.10%, 34bps lower

than 12 months prior. The yield spread

between prime Sydney CBD and North

Sydney has compressed to just 52bps.

Secondary market yields currently range

between 5.25% to 5.50%. This has

resulted in a prime and secondary yield

spread of just 20bps.

FIGURE 3

Average Gross Face Rents Prime & Secondary, North Sydney

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

Jan-0

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0

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AVG PRIME YIELD AVG SECONDARY YIELD

PRIME 10Y AVG SEC 10Y AVG

0

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1,200

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PRIME SECONDARY

Forecast

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NET ABSORPTION (SIX MONTHS TO) VACANCY RATE (RHS)

Forecast

FIGURE 2

North Sydney Net Absorption & Vacancy Per six month period (000’s sq m, %)

Page 5: RESEARCH - Knight Frank...RESEARCH North Sydney awaits the completion Investment volumes across the North Shore markets totalled $2.14 billion, with over 80% of capital coming from

5

in the first half of 2018, we understand

that more than half of this has now been

leased, including three floors to Hireup.

Lowest prime vacancy rate on the north shore Above-average absorption of prime

space is creating a two-tiered market

dynamic between prime and secondary,

which is being reflected in the individual

vacancy rates. Prime vacancy

experienced its largest decline in 15

years, falling from 14.8% in July 2018 to

1.9% in January 2019. While secondary

vacancy has risen to 8.2% over the same

period, up from 7.4% in July 2018, it is

still well below its long-run historical

average of 11%.

Rental growth accelerating Given the level of new demand and

declining vacancy rate recently, there has

been strong rental growth over the past

12 months. Average prime gross face

rents have increased 7.9% to $726/sq m

and secondary gross face rents have

increased 4.8% to $645/sq m over the 12

months to January 2019. With prime

incentives falling from 24.5% a year ago

to 21.3%, net effective rents have surged

15.2% YoY to $442/sq m.

In the secondary market, net face rents

increased 5.1% YoY to measure $540/sq

m as at January 2019. Incentives have

dropped by 240bps to average 22.3%.

This resulted in net effective rental growth

of 10.7% YoY to $396/sq m.

Yields continue to firm As a January 2019, average prime yields

range between 5.50% and 6.00%,

representing a 45 bps compression over

the previous 12 months. Secondary

market yields average 5.75% to 6.25%,

representing a 50bps compression on the

same time last year.

Property Bank Australia divested 154

Pacific Highway in June 2018, a B grade

10-storey tower on a 6.0% core market

yield. The sale recorded a rate of

$9,367/sq m highlighting the strong

demand for secondary assets along this

corridor.

72 Christie Street has recently sold for

$157.55 million to UOL Group, a

Singaporean listed property company, on

a core market yield of 5.0% and a record

rate per square metre of $13,993 for the

precinct. The building previously sold in

2017, was repositioned by Proprium

Capital Partners last year after securing

MasterCard as the new anchor tenant on

a 10-year lease.

FIGURE 5

Net Absorption & Vacancy Per six month period (000’s sq m, %)

Source: Knight Frank Research/PCA

FIGURE 7

Average Prime Core Market Yields Prime & Secondary, Crows Nest/St Leonards

Source: Knight Frank Research

FIGURE 6

Average Gross Face Rents Prime & Secondary ($/sq m)

4%

5%

6%

7%

8%

9%

10%

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PRIME SECONDARY

Source: Knight Frank Research

New tenant demand underpins absorption trend In contrast to the mid-2000s, recent

absorption has been demand led, not

supply led, with take-up of existing prime

space driving down the headline vacancy

rate to 6.6% (as at January 2019), down

from 11.1% at the same time last year.

11,512 sq m of positive net absorption

was recorded over the six month period

to January 2019, the highest six monthly

absorption rate since January 2006.

Leasing absorption trends were led by

MasterCard securing 11,259 sq m at 72

Christie Street to consolidate staff from

their Rozelle and North Sydney offices.

While low prime vacancy (1.9%) is limiting

tenant options, particularly for contiguous

space, there has been a notable increase

in new demand for the precinct which

bodes well for future development plans.

HammondCare, have secured two floors

in 207 Pacific Highway, will be relocating

shortly from the Sydney CBD. Only About

Children also secured 1,300 sq m at 207

Pacific Highway, relocating from

McMahons Point last year, expanding

their footprint in the move. More recently,

Virgin Active has pre-committed to lease

a full floor (c1,200 sq m) in the two-tower

St Leonards Square development at 472

Pacific Highway when completed later

this year.

Clemenger BBDO has relocated from 120

Pacific Highway to Walsh Bay, leaving

behind c5,100 sq m of backfill space.

While this partially offset absorption gains

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PRIME SECONDARY

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NET ABSORPTION 6 Mths to… (m²) - LHS TOTAL VACANCY (%) - RHS

Forecast000's

Page 6: RESEARCH - Knight Frank...RESEARCH North Sydney awaits the completion Investment volumes across the North Shore markets totalled $2.14 billion, with over 80% of capital coming from

6

RESEARCH NORTH SHORE OFFICE MARCH 2019

As at January 2019, the office vacancy rate

measured 6.2%, down from 6.8% a year

prior, which has been driven by positive

yearly absorption of 1,645 sq m. In the

prime market specifically, vacancy has

tightened to its lowest level since 2007,

declining from 6.5% to 3.9% in the 12

months to January 2019. Looking ahead,

with no supply in the pipeline, the

Chatswood vacancy rate is forecast to

trend towards 5.5% by mid-2020.

Strong net effective rental growth Recent rental growth in Chatswood has

been relatively firm given the reducing

vacancy rate and continued office demand.

The wider context of a supply constrained

CBD market and a tight prime market in

North Sydney are adding to the local

market momentum in Chatswood.

In the 12 months to January 2019, average

prime gross face rents increased by 5.9%

to $667/sq m ($539/sq m net). With prime

incentives falling from 24.3% a year ago to

21.3%, prime net effective rents have

grown significantly by 12.1% YoY. Prime

rents are forecast to continue to grow

strongly over the next 12 months, with a

further 6% in face rental growth

anticipated. Similar rental growth is being

experienced in the secondary market with

gross face rents up 5.5% over the year to

$577/sq m ($470/sq m net). On a net

effective basis, rental growth of 9.5% YoY

has been recorded with secondary

incentives falling to 22% (from 24.2% a

year ago).

Rental growth is forecast to continue over

the next two years in anticipation of the

stage 1 metro opening in mid 2019

followed by stage 2 in 2024 providing

increased connectivity to the Sydney CBD.

Solid investment activity With no traction in the first half of 2018,

investment activity in Chatswood finished

strongly at the back end of 2018,

recording $338.7 million in office sales

across three assets, almost doubling the

2017 transaction volumes of $170 million.

Two of Chatswood’s major office buildings

transacted at the end of 2018; 67 Albert

Street purchased by Mapletree for $158

million on a core market yield of 5.69%

and 465 Victoria Avenue acquired by

Centuria Metropolitan REIT for $166.50

million on a core market yield of 5.75%.

More recently, Chatswood’s trophy asset,

The Zenith at 821 Pacific Highway has

come to market. Boasting over 44,000 sq

m of prime office space, the asset is fully

leased on a 4.3 year WALE.

Yields reach tightest level on record

After compressing a further 52bps over the

12 months to January 2019, prime office

assets are trading well under 6% and at a

level that has not been seen before in this

market, reflecting Chatswood’s tightly held

status. The strong rental growth profile of

Chatswood, coupled with its relative value

in comparison to other major CBD

markets, has made it an attractive

destination for investors.

Positive tenant demand

The pent-up demand for office space in

Chatswood has resulted in positive net

absorption of 1,645 sq m in the 12 months

to January 2019. By grade, the prime

market recorded positive absorption of

4,000 sq m over 2018. However, in the

secondary market negative absorption of

2,355 sq m was recorded in the 12 months

to January 2019. Positive absorption in the

prime market stemmed from the lack of

prime grade leasing options in conjunction

with limited availability of efficient

contiguous floor plates.

Tenant demand and leasing activity have

been diverse over the last 12 months with

lease deals done across a range of

different sectors. Of the observed lease

deals over the period, 37% have been in

the Public Administration and Safety

sector including Sydney North Health

Network (923 sqm at 475 Victoria Avenue).

Professional services (27%) and Health

care and social assistance (14%)

represented the next largest share of lease

deals over the 12 months to January 2019.

Demand driven fall in vacancy

Over the past two years, the Chatswood

office market has experienced a demand

driven fall in vacancy. Positive absorption

has been recorded throughout the past

four half year reporting periods,

underscored by a steady flow of lease

deals.

FIGURE 8

Chatswood Net Absorption & Vacancy Per six month period (000’s sq m, %)

Source: Knight Frank Research/PCA

FIGURE 9

Average Gross Face Rents Prime & Secondary, Chatswood ($/sq m)

Source: Knight Frank Research

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NET ABSORPTION 6 Mths to… (m²) - LHS TOTAL VACANCY (%) - RHS

Forecast000's

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PRIME SECONDARY

Forecast

Chatswood Lease Deals By Size Bracket —2018

0-500

36%

501-1000

23%

1001-2500

23%

2501-5000

9%

5001-10000

9%

Page 7: RESEARCH - Knight Frank...RESEARCH North Sydney awaits the completion Investment volumes across the North Shore markets totalled $2.14 billion, with over 80% of capital coming from

7

FIGURE 11

Macquarie Park/North Ryde Net Absorption

& Vacancy Per six month period (000’s sq m, %)

FIGURE 12

A-Grade Net Rents & Incentives Macquarie Park/North Ryde, Prime

Source: Knight Frank Research Source: Knight Frank Research/PCA

John Holland secured a 3.2ha site in 2017

as part of the Government’s asset

recycling program that could deliver

c117,000 sq m of office space to

Macquarie Park. With a pre-commitment

(leaseback) to the State Government for

25,000 sq m and an option to take further

space, the first stage of the development

is currently underway with practical

completion expected in Q1 2020.

Additionally, more than 130,000 sq m of

new office space is mooted pending

development approval and/or tenant pre-

commitments, including Macquarie

University’s Innovation Hub (50,000 sq m)

and the Frasers/Winten site, formerly

known as the Dick Smith site, at 396 Lane

Cove Road (staged up to 76,100 sq m).

Vacancy still at record low The headline vacancy rate has declined

for the third consecutive six month period

dropping from 5.4% in July 2018 to 4.8%

in January 2019, primarily due to stock

withdrawals. This is the lowest headline

vacancy rate recorded in Macquarie Park

since 2005 and well below its long-term

average of 9.0%.

Prime demand benefits secondary rents While strong take-up in the first half of

2018 saw above-average gross face rental

growth, the rate of growth has begun to

ease back, with no movement in average

prime rents over the last two quarters.

Low prime availability limits absorption Macquarie Park recorded negative net

absorption of 3,754sq m in the six

months to January 2019, mostly due to

the withdrawal of 10,000sq m of

secondary space at 112 Talavera Road

for residential conversion.

Tenant demand has tempered relative to

the first half of 2018 when 8,061 sq m

was absorbed. Some contraction has

occurred on the back of tenants putting

expansion/relocation plans on hold due

to a lower availability of prime options to

lease. As a result, prime vacancy has

barely shifted in six months to January,

moving from 3.4% to 3.5%, to maintain

its lowest vacancy rate since tracking

began in 2005.

While the scope of prime space available

to lease, especially for larger tenant

requirements, is beginning to limit the

flight to quality trend within the precinct,

it bodes well for developer confidence on

future projects seeking pre-commitment.

Pent-up tenant demand for prime could fuel pipeline Schneider Electric has plans to

consolidate multiple sites into a new

building in Macquarie Park and has pre-

committed c7,000 sq m of the stage 2

Goodman development at 97 Waterloo

Road (15,000 sq m), which will

commence construction by mid 2019.

On an annual basis (to Jan-19), average

prime gross face rents have grown 4.2%

to $498/sq m ($398/sq m net face).

Average prime incentives have declined

from 23-24% net to c22% over the year.

In the secondary market, average gross

face rents increased 2.6% YoY to $435/

sq m ($335/sq m net face) and the

average incentive decreased from 25%

net in January 2018 to c20% in January

2019. On a building by building

proposition there appear to have been

greater reductions in average secondary

incentives due to shortage of prime

space and potentially, an increase in

renewal activity as tenants have limited

options in the short-term.

Investment volumes buoyed by $231.2m Dexus sale The low level of investment volumes

during 2018 has been indicative of the

tightly held nature of Macquarie Park/

North Ryde against its North Shore

counterparts. However, in February 2019,

Dexus announced that it had sold a

100% interest in the campus style three

building office asset at 11 Talavera Road

off-market for $231.2 million, a slight

premium to its December book value.

The transaction, which is due to settle in

June 2019, is the largest recorded since

Singapore’s AIMS AMP Capital Industrial

REIT acquired a half stake in Optus

Centre in 2013 for $184.4 million.

Prior to this, the last transaction in the

precinct was in June 2017, when

Goodman sold the newly built 8

Khartoum Road office building to Ogen

Nominees, a local investor, for $93.5

million on a reported yield of 5.5%.

Goodman also acquired 56-58 Waterloo

Road in 2017 for $40.5 million. The

property was previously owned and

occupied by Novartis Pharmaceutical

who relocated next door and the property

is now fully leased to Macquarie

University.

As at January 2019, average prime yields

range between 5.75% and 6.00%,

representing a 25 bps tightening over the

previous 12 months. Secondary market

yields range from 6.00% to 6.50%,

representing a 50bps compression on

the same time last year.

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

-30

-20

-10

0

10

20

30

40

50

60

70

Jan-0

9

Jan-1

0

Jan-1

1

Jan-1

2

Jan-1

3

Jan-1

4

Jan-1

5

Jan-1

6

Jan-1

7

Jan-1

8

Jan-1

9

Jan-2

0

Jan-2

1

NET ABSORPTION 6 Mths to… (m²) - LHS TOTAL VACANCY (%) - RHS

Forecast

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0

50

100

150

200

250

300

350

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

Jan

-20

Jan

-21

INCENTIVE % (RHS) NET EFFECTIVE RENT

Page 8: RESEARCH - Knight Frank...RESEARCH North Sydney awaits the completion Investment volumes across the North Shore markets totalled $2.14 billion, with over 80% of capital coming from

8

RESEARCH

TABLE 2

Recent Leasing Activity North Shore and Macquarie Park

Address Region Area (m²) Face Rent

Net ($/m²)

Term

(yrs) Lease Type Tenant Start Date

118 Mount Street North Sydney 16,000 770 10+5+5 Pre-comm Zurich Financial Nov-20

40 Mount Street North Sydney 8,100 U/D 10 Renewal Coca Cola Amatil Jul-20

1 Denison Street North Sydney 5,600 750 10 Pre-comm SAP Jan-21

1 Denison Street North Sydney 15,500 U/D 12 Pre-comm Nine Entertainment H2 2020

472 Pacific Highway St Leonards 1,200 770 10 New Virgin Active Dec-19

203 Pacific Highway St Leonards 3,500 620 10 Renewal Cardno Sep-19

205 Pacific Highway St Leonards 1,324 580 5 New Next Media Apr-19

50 Miller Street North Sydney 4,100 U/D 12 New WeWork Apr-19

67 Albert Street Chatswood 139 575 5 New FirstPharma Dec-18

475 Victoria Avenue Chatswood 240 550 5 New Shiji Nov-18

3 Richardson Place Macquarie Park 156 315 5 New Swift Computers Oct-18

76 Berry Street North Sydney 1,046 670 5+5 New Microfocus Oct-18

NORTH SHORE OFFICE MARCH 2019

TABLE 3

Recent Sales Activity North Shore

Address Region Price

($ mil)

Core

Market

Yield (%)

NLA (m²) $/m²

NLA

WALE

(Yrs) Vendor Purchaser

Sale

Date

40 Mount Street (50%)* North Sydney 226.5 5.00 28,552 15,873 6.7 National Pension

Service

M&G Real Estate JV

ICPF Dec-18

72 Christie Street St Leonards 157.5 5.00 11,259 13,993 9.7 Proprium Capital

Partners UOL Group Dec-18

67 Albert Avenue^ Chatswood 158.0 5.69 15,180 10,707 3.4 CorVal Mapletree

Investment Nov-18

465 Victoria Avenue- Chatswood 166.5 5.75 15,158 10,646 5.0 Hines Centuria Oct-18

80 Mount Street North Sydney 71.0 5.42 6,204 11,444 2.0 PropertyLink CKK Enterprises Sep-18

154 Pacific Highway St Leonards 60.20 6.0 6,427 9,367 2.1 Property Bank Aust. NSW Farmers May-18

100 Miller Street (50%) North Sydney 300.0 4.73 26,967# 16,249 3.4 Redefine Global Early Light Int. May-18

Source: Knight Frank Research n refers net g refers gross # office component only ^Leasehold - Part of Portfolio

*M&G Real Estate acquired a 25% stake in the asset whilst the Investa Commercial Office Fund acquired a further 25% stake in the building to increase its interest from 50% to 75%.

Page 9: RESEARCH - Knight Frank...RESEARCH North Sydney awaits the completion Investment volumes across the North Shore markets totalled $2.14 billion, with over 80% of capital coming from

Knight Frank Research provides strategic advice, consultancy services and forecasting

to a wide range of clients worldwide including developers, investors, funding

organisations, corporate institutions and the public sector. All our clients recognise the

need for expert independent advice customised to their specific needs.

Knight Frank Research Reports are available at KnightFrank.com.au/Research

© Knight Frank 2019 This report is published for general information only. Although high standards have been used in

the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be

accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents of this

document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to

particular properties or projects. Reproduction of this report in whole or in part is not permitted without prior consent of,

and proper reference to Knight Frank Research.

Definition:

Core Market Yield: The percentage return/yield analysed when the assessed fully leased net market

income is divided by the adopted value/price which has been adjusted to account for property

specific issues (i.e. rental reversions, rental downtime for imminent expiries, capital expenditure,

current vacancies, incentives, etc).

RESEARCH

Ben Burston

Partner, Head of Research and Consulting

+61 2 9036 6756

Ben [email protected]

Katy Dean

Associate Director

+61 2 9036 6612

[email protected] Marco Mascitelli

Senior Analyst

+61 2 9036 6656

[email protected]

NSW

Angus Klem

Partner, Head of North Sydney

+61 2 9028 1110

[email protected]

OFFICE LEASING

David Howson

Partner, Head of Office Leasing, Australia

+61 2 9036 6697

[email protected]

Giuseppe Ruberto

Partner, Head of Office Leasing, North

Sydney

+61 2 9028 1115

[email protected] Steve Clapham

Director, Office Leasing

+61 2 9028 1117

[email protected]

CAPITAL MARKETS

Tyler Talbot

Partner, Institutional Sales, Sydney Metro

+61 2 9028 1148

[email protected]

Arland Domingo

Director - Metropolitan Sales

+61 2 9028 1122

[email protected]

Paul Roberts

Partner, Joint Head of Institutional Sales,

Australia

+61 2 9036 6872

[email protected] Ben Schubert

Partner, Joint Head of Institutional Sales,

Australia

+61 2 9036 6870

[email protected]

Graeme Russell

Partner, Institutional Sales, Australia

+61 2 9036 6618

[email protected]

Melbourne CBD Office

Market Overview

March 2019

Active Capital View

Outlook 2019 Student Housing

2018 Sydney CBD Office

Market Overview

March 2019