The Lower North Shore strata office market is approximately 93,000sqm in size. The strata market sees very little new supply added, typically strata property is borne from secondary assets being subdivided however this has not been an exit strategy applied by owners and the attraction of redevelopment or reuse to residential has been far more attractive.
Absorption has been negative the last year however this more to do with the withdrawal of stock over this period. Demand for office stock across the broader North Shore has been robust recorded at 11,498sqm over the last six months with North Sydney the most active followed by Chatswood.
Coupling withdrawal of stock and absorption has resulted in vacancy levels reducing across both the broader and strata office markets. Historically, strata properties have a lower vacancy rate; this due to the high owner occupation resulting in an average of 6.1% over the last ten years. Currently the rate is substantially less recorded at just 2.6% in July 2015 according to the Property Council. This tight vacancy environment is restricted to the strata market however the trend follows the broader office market. The North Shore total market vacancy is currently 8.5%, the best performer being Chatswood 6.8% followed by North Sydney at just 8.0% and Crows Nest/St Leonards at 11.2%.
Given the small size of the North Shore Strata office market, there has been significant volatility in the capital values depending on the volume of sales, quality and location of assets. Unlike the Sydney CBD market, the majority of strata office sales in this location include parking facilities which affect the values achieved. This market has gone through some strong growth phases however has been more affected from the negative results of the tech wreck, GFC and high vacancy/low employment environments. More recently however there has been an uptick in capital values albeit still behind the rates achieved during the peak of the market in 2002/2003 which was in line with the broader residential market growth where investors looked to diversify from residential assets. This trend has somewhat returned as record low interest rates, high residential prices and the proliferation of SMSF resulting in interest in this market.
The North Shore strata office market resulted in $75 million in sales during 2014, the highest volume on record; while 2015 to July has seen $18 million change hands however further growth is anticipated through to the end of the year. Capital values have remained steady over the 2014 and 2015 periods, currently on average representing $4,620/sqm when parking is included; removing this parking factor there has been some minor decline to $3,830/sqm. This market shows substantial value compared to the Sydney CBD market which currently averages $6,200/sqm in 2015 (excluding parking).