Demand for office space has continued to rise in North Sydney’s fiercely competitive peripheral office market, which is now recognized as one of the most expensive in the country.
Effective net rents, not supported by incentives and payable in a normal market, have risen to $520 per square meter per year in North Sydney in the first three months of the year, according to CBRE.
This compares to effective net rents falling to $380 in Parramatta and $302 in Macquarie Park in north-west Sydney.
North Sydney office space incentives remain high at 35 percent, but low compared to Brisbane’s inner city and Crows Nest, where incentives are 45 percent and 38 percent, respectively.
Tom Broderick, CBRE’s Head of Office and Capital Markets Research The Urban Developer Companies looking for new office space were now willing to pay an average of 9.3 percent more per square meter compared to their previous premises.
“North Sydney has become the next best option for large companies looking to expand,” said Broderick.
“I think the success of the North Sydney market is due to the limited availability of land in the Sydney CBD where supply is limited.
“Total office stock in Sydney CBD has only grown 16 percent over the past 20 years, compared to 62 percent in Melbourne CBD and 42 percent in Brisbane CBD.”
Key indicators for head offices without CBD: Q1 2022
| demand | Net cold rent (QoQ) | Effective Net Rent (QoQ) | Yield (QoQ) | |
|---|---|---|---|---|
| North Sydney | ▲ | $879▲ | $520▲ | 4.8%▼ |
| Paramatta | ▶ | $585▶ | $380▼ | 4.9%▼ |
| Macquarie Park | ▶ | $437▶ | $302▼ | 5.0%▶ |
| Chatswood | ▶ | $612▲ | $351▲ | 5.5%▶ |
| crow’s nest | ▶ | $659▶ | $364▼ | 5.1%▶ |
| south bank | ▶ | $628▲ | $393▲ | 4.8%▶ |
| St Kilda Road | ▶ | $463▶ | $293▼ | 5.0%▶ |
| Brisbane’s city centre | ▲ | $521▲ | $235▼ | 5.9%▶ |
| West Perth | ▶ | $363▶ | $231▶ | 7.0%▶ |
| Canberra Non Civic | ▶ | $384▶ | $267▼ | 5.5%▶ |
Once a ghost town with a vacancy rate of almost 20 per cent, North Sydney has become a hub for both traditional financial and insurance services and the less CBD-based traditional sectors of media and IT.
Pulling you across the harbor and away from the CBD was North Sydney’s strategic location, relative affordability and access to transport.
The lack of supply of prime office space has also fallen dramatically in recent years, with vacancy falling from 17.7 per cent in 2020 to just 6 per cent currently.
Developers have also been quick to recognize the suburb’s growing reputation as a new commercial center and low office supply in recent years, with as many as ten new office towers proposed or under construction.
Big players such as Lendlease, Pro-Invest and Thirdi are among those settling in North Sydney.
Stockland has also increased its presence in North Sydney with a proposed $1.3 billion redevelopment of its 110-122 Walker Street location.
Upon completion in 2024, the Hassell-designed site will be a 64,000 sqm, 55-story office and retail skyscraper featuring state-of-the-art working practices.
Another site nearing completion is developer Billbergia’s 50-story commercial development at 88 Walker Street.
After a record amount of new supply entered the north Sydney office market last year, a lack of commercial development is now expected with just two projects due to start in 2023.
The only other significant planned development is Lendlease’s Victoria Cross development, which is planned for 2025 and is expected to dramatically improve the suburb’s transport infrastructure and connectivity.
“There were early signs that net rents are beginning to rise across the country as pressure on construction costs begins to impact economic rents for new developments,” Broderick said.
“Significant residential, commercial and infrastructure construction combined with supply chain issues are increasing pressure on costs.
“Supply is expected to be relatively stable over the next few years before tapering off in 2025 with the big unknown, the significant number of projects under discussion with target deliveries from 2026 onwards.”
“This could narrow the national vacancy rate in the medium term as there is less supply coming into the market in those years.”
Businesses have grappled with asking employees to return to the office as workers face commuting costs, soaring fuel prices and increasing pressure on the cost of living.
Companies, alongside the state government, have been actively trying to encourage employees to commute.
The City of Sydney, for example, recently partnered with office landlords, building managers and businesses to promote a range of free and paid employee events and activities – including visual arts, live music, cultural events and performances.
The council also presents activities that city employees can do individually during their lunch break or to reconnect with colleagues or customers as part of their working day.
Broderick said following a recent user survey, he was encouraged by the vast majority of local respondents to return to the office full-time by the end of the year.
“Approximately two-thirds of local respondents said they are already encouraging a return to the office, while the remaining third are more willing to allow an organic return,” Broderick said.
“This confirms what we’ve heard locally that companies in Australia are less willing to prescribe returns and would prefer a softer approach.
“We believe that one way to drive this organic return to the office is to upgrade their spaces by offering a better experience in a better building.”
While the office market in Sydney’s central business district remained relatively flat in the first quarter, around 27,800 m² of additional space was let last year.
The vacancy rate fell by 0.2 percentage points to 12.3 percent in the first quarter as some building sites were withdrawn.
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