NORTH SYDNEY OFFICE MARKET OVERVIEW The North Sydney office market is located across the harbour, north of the Sydney CBD and is connected by the Harbour Bridge, several vehicular underground tunnels, as well as train and ferry services. The Victoria Cross Station, which will be part of the Sydney Metro City & Southwest line, will be completed in 2024. This will further enhance the connectivity between the North Sydney and Sydney CBD, with an estimated travel time of about 6 minutes. The improved connectivity between the two markets is expected to drive additional leasing demand to the North Sydney market. Demand and Supply As of year-end 2023, office inventories in North Sydney totalled 936,000 sq m, representing 10.8% of the total size of Sydney’s office market. North Sydney is the third largest office market in Sydney trailing only the CBD and Paramatta. The market remains a two-tiered market with about 60% of the office stock consisting of secondary-grade assets. North Sydney saw relatively elevated levels of new office supply in 2023. Office developments completed over the last 12 months included 2-4 Blue Street (15,000 sq m) and 88 Walker Street (12,500 sq m). These projects represented the first major deliveries to the market since 2019 and 2020 which saw the delivery of 100 Mount Street (42,000 sq m) and 1 Denison Street (59,000 sq m). Looking forward, the only major office development currently under construction is the Metro Victoria Cross Development (55,000 sq m) due for completion in 2025. A further 450,000 sqmof office developments have also been mooted at this time, meaning they have all either been side-lined due to elevated construction costs, are in the stage of early feasibility studies, contingent on pre-leasing or are undergoing refurbishments with no known commitment to construction. For full year 2023, the North Sydney market recorded a total negative net absorption of 32,100 sq m. Secondary assets accounted for the majority of negative net absorption of 23,300 sq m over the past 12 months. Prime assets recorded a negative net absorption of 8,800 sq mover this time. Office assets in North Sydney struggled to attract tenants in 2023 due to the flight-toquality occurring across themarket. Many North Sydney occupiers have taken advantage of elevated vacancy rates and incentives in the CBD to move into the city. The lack of leasing activity and relatively elevated levels of new supply resulted in the overall North Sydney vacancy rate climbing to 24.2% as of year-end 2023. Source: CBRE Australia Research, 4Q 2023 SYDNEY CBD OFFICE CAPITAL VALUE AND YIELD 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Capital Value (A$/sq m) 1Q 2019 2Q 2019 3Q 2019 4Q 2019 1Q 2020 2Q 2020 3Q 2020 4Q 2020 1Q 2021 2Q 2021 3Q 2021 4Q 2021 1Q 2022 2Q 2022 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023 4Q 2023 Prime Capital Value Secondary Capital Value Prime Yield Secondary Yield 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 Yield (%) Overview Leadership Performance Framework Other Information ANNUAL REPORT 2023 117
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