With continued low interest rates it is little surprise that commercial values have maintained the strong growth seen in 2014 and have jumped higher again in the first half of 2015 Demand for all forms of commercial property is high and those owners that have been happy to sell have had no shortage of buyers competing for the opportunity.
The real surprise in the market has been the continued improvement of the leasing market. We have been reporting for 18 months that leasing activity across the North Shore is strong and the first half of 2015 has seen this continue. Our leasing teams across North Sydney and Chatswood have completed more than 11,000 sqm of lettings in the first 7 months of 2015 an increase of over 30% compared with the same period last year and almost double the level of 2 years ago.
This sustained increase in demand is pushing vacancy rates down and rents up. Vacancy rates across the North Shore have fallen to 8.5% according to the latest Property Council Australia report. It is notable that demand has been high for mid-level B Grade offices as small to medium sized businesses look for good quality space without wanting to pay A Grade rents. This is already prompting some owners to undertake refurbishments in order to capture higher rents and values.
The recovery in office demand is spreading out across all markets and locations such as Chatswood are now back in demand. Our new Chatswood office has leased over 3,700 sqm in Chatswood and Artarmon in the first half of this year.
With lower vacancy rates and almost no commercial development taking place, it is likely that rents will continue to rise and lease incentives tighten. These changed leasing conditions will come as a surprise to many tenants that have been used to landlords wooing them with fit outs and lengthy rent frees.
Not all markets however will move at the same pace. North Sydney has more supply coming on stream with the completion, next year of 177 Pacific Highway. It may also face competition from Sydney CBD where supply will increase as Barangaroo and other developments come on stream. A couple of larger occupiers are also contracting or relocating which will add to supply this year.
The locations that look set to continue tightening in the short term are the more af
fordable markets of St Leonards, Chatswood and Macquarie Park. In all of these markets there is almost no commercial development taking place and many older commercial buildings are being replaced by residential.
We hope you will find this newsletter of interest and if you have any questions or need assistance with property matters please give us a call.
Artarmon – Sold $16.1M
On behalf of Denison Funds Management we have sold 407 Pacific Highway, Artarmon, an impressive office complex of 6,000 sqm with 131 car spaces.
In the last 2 years our leasing team led by Chris Hartigan was successful in leasing over 3,000 sqm tobring the building to 100% occupancy. The most recent letting was for 1,200 sqm to Prime Constructions.
The property was sold to a local investor for $16.1m. The purchaser has retained us to manage the property.
St Leonards – Sold $8.5M
On behalf of a private client we have sold 174 Pacific Highway, St Leonards to an inter-state investor for $8.5 M.The property totals 1,900 sqm with 52 cars spaces. The sale was helped by our leasing
team securing a tenant for 320 sqm on the top floor which fully leased the building and increased the net income to $671,000 p.a. The sale reflected an initial yield of approximately 7.8% and a capital rate of almost $4,500 spm. Our management team will continue to manage the property on behalf of the new purchaser.