Source: CBRE Australia Research, 4Q 2023 NORTH SYDNEY CAPITAL VALUE AND YIELD Investment Market, Capital Values and Yields As was the case across all the major Australian office markets, investment activity in North Sydney was heavily impacted by the cash rate increases seen over the last two years. Transaction volumes in North Sydney totalled A$181 million across four transactions in 2023, a decline of 86.6% compared to the transaction volumes recorded in 2022. The largest transactions to close over the period were the purchase of 54 Miller Street by a private buyer for A$72.1 million and the purchase of 162 Blues Point Road by Fortinet for A$65.4 million. The gap between buyer and seller pricing expectation has caused cap rates to expand significantly over the course of 2023. Prime and secondary office yields ended the year at 6.5% and 7.6%, respectively. These figures marked YoY expansion of 153 bps and 212 bps. These yield increases also led to capital value declines in North Sydney. The average capital value for prime and secondary office assets ended the year at A$15,375 and A$10,086 per sq m, respectively. These figures represented significant value depreciation of 19.8% and 24.2% YoY. A recovery in investment activity in North Sydney is now highly dependent on declines to cash rates and the cost of capital. CBRE forecasts that cap rates will likely continue to expand in North Sydney over the first half of the year before stabilising and beginning to fall over the second half of 2024. Source: CBRE Australia Research, 4Q 2023 NORTH SYDNEY RENT AND INCENTIVES 1,000 900 800 700 600 500 400 300 200 100 0 Net Effective Rent (A$/sq m/annum) 1Q 2019 2Q 2019 3Q 2019 4Q 2019 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2021 2Q 2021 3Q 2021 4Q 2021 1Q 2022 2Q 2022 3Q 2022 4Q 2022 1Q 2023 2Q 2023 3Q 2023 4Q 2023 2024F 2025F 2026F Prime Net Effective Rent Secondary Net Effective Rent Prime Incentives Secondary Incentives 40 35 30 25 20 15 10 5 0 Incentives (%) 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 119
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