The North Sydney office market is the stand-out performer within North Shore markets, according to Knight Frank - with strong absorption levels and increases in net face rents over the past 12 months.
Strong absorption levels and limited supply have resulted in total vacancy levels contracting to 7.2 percent, and 1.9 percent across the A Grade market, in North Sydney.
Knight Frank’s North Shore Office Market Overview report says this has put pressure on prime net face rents, which have increased by 10.2 percent over the last year to $587 per sqm.
The report says low vacancy is set to continue, given the limited supply pipeline.
Tenant demand has been strong over the past six months across all quality grades and as space options diminish for A Grade stock, tenants have considered secondary space.
“Double-digit Prime net face rent growth has resulted in incentives (gross) starting to experience some downward pressure and have now moderated to 25 percent from the 27.5 percent recorded in April 2011,” the report says.
Kymbal Dunne, Knight Frank North Sydney managing director, says high incentives are only expected to slightly moderate due to capital funding constraints.
“This phenomenon of strong increases to face rents before a reduction in incentive is one unseen before, however it highlights the difficulty in financing in the current economic climate,” Dunne says.
“The demand for high quality space is constant, but with a market where 75 percent of the stock is B and C grade, there is no foreseeable new stock. The refurbishment opportunity has become the elephant in the room.”