Demand for the resurgent North Sydney office market has attracted an increasingly wide range of tenants due to its location, relative affordability and access to transport, as well as becoming a viable alternative to the Sydney CBD.
North Sydney is one of the strongest performing office markets in the country, with further growth forecast over the coming years.
The North Sydney and Macquarie Park precinct is currently experiencing record development activity, with 155,000sq m of office space, due for completion over the next 12 months, most of which is substantially pre-leased — demonstrating the high level of demand for prime office accommodation.
Population growth and new infrastructure has peaked interest in Sydney's northern suburbs with developers circling sites to get a foothold into the forecast boom.
With the completion of the North West Metro, there is a strong outlook for the North Shore, the increased demand has stimulated growth and created further opportunities for the industry, with a steady supply of office space in the pipeline for 2020 and 2021.
The precinct has remained particularly attractive to technology and media companies with these tenants accounting for 34 per cent of leasing activity since 2018, according to new research from Knight Frank.
While rents in the North Sydney office market are more affordable than the CBD, they are gradually catching up, with rising tenant demand leading to rental growth rates higher than the Sydney CBD, according to the Knight Frank research.
Average net face rents in this office market are $698 a square metre and there is more vacant space than the CBD, with the proportion at 6.8 per cent.
The year-on-year prime rental growth rate is currently running 200 basis points above Sydney on a gross basis.
Prime and secondary markets in North Sydney recorded gross effective rental growth of 9.2 per cent and 8.5 per cent respectively over the past 12 months.
Recent leasing deals have seen the precinct return to its former days of as a tech and media hub.
Nine Entertainment increased its office space, securing a 25,000 square metre lease for 12-years in Winten Property Group’s $1.2 billion 1 Denison commercial office building, to be joined by Microsoft and SAP.
Citrix’s Sydney team have also relocated to a new headquarters in Sydney’s new technology hub at 100 Mount Street, along with Victory Offices.
Co-working and flexible office operators have also added North Sydney to their target market with WeWork recently opening its first North Sydney office, leasing around 4,100sq m in 50 Miller Street.
Offshore capital continues to flood the North Shore markets with over 85 per cent of the $2.5 billion in investment volumes coming from offshore groups in the 12 months to July 2019.
Knight Frank head office leasing Giuseppe Ruberto said high profile tech companies moving into the area would further drive positive take-up levels over the next two years.
“While tech companies are underpinning leasing demand in North Sydney, other industries are also very active, with financial and insurance services comprising 20 per cent of take-up and professional, scientific and technical services making up 15 per cent of leasing activity,” Ruberto said.
The new Sydney Metro rail project and planned pipeline of new office projects in the area is providing a further uplift to demand levels and resulting in new market entrants.”
Sydney's CBD office market is continuing to tighten with the vacancy rate of 4.1 per cent at a 10-year low and expectations are that it will remain at that level in 2020.
There is a new wave of developments coming into the CBD, although a significant proportion of the space has been pre-committed.
While the CBD continues to navigate record low vacancy and rapacious commitment rates on new supply, high-profile international organisations are relocating their workforce in order realise significant cost savings.