Preliminary results suggests increasing demand for commercial property in North Sydney for the April 2017 quarter.
Preliminary sales results saw the total number of non-residential sales at 68 for the quarter, which is 2.9% down on the previous quarter. However, in the year to April 2017, sales volumes are 12.7% higher than the year to April 2016.
The total value of non-residential sales in the last three months was $524.8 million, which is almost 40% higher than the January quarter. These results are likely to be seasonal, with data historically showing lower transaction values at the beginning of the year. However the higher sales values against a lower volume of transactions suggest there is increasing demand in the North Sydney area against potentially lower stock.
Approximately 86% of the value growth in non-residential sales values came from commercial building sales. Commercial unit sales also increased in value (totalling $19 million) against a smaller sales volume (of 12 sales) over the April quarter.
Interestingly, the Property Council of Australia recorded a slight increase in the North Sydney office vacancy rate in the six months to January 2017 from 7% to 7.1%.
However, several factors could be driving demand for office buildings in the area. The first is increased infrastructure set to service North Sydney. The metro rail project includes two new stations in North Sydney, including Crows Nest and Victoria Cross, set to be completed in 2024, will see increased accessibility to work spaces in the area.
It is worth noting that Transport for NSW acquired almost 60 non-residential properties across the North Sydney precincts, 18 of which were commercial spaces. It is likely that Transport NSW is acquiring this land to make space for new transport infrastructure, which will remove office space from the market and potentially push up yields.
Furthermore, increased demand for commercial office space in the Sydney CBD could start to see demand spill-over into the established commercial hub of North Sydney.
Interestingly, CoreLogic has captured three development applications for ‘end of trip’ facility upgrades over the past three years in the North Sydney Cityscope region. The upgrade of these facilities, which include bicycle parking, locker facilities and change rooms, further highlight North Sydney as a prime work space for commuting professionals.
What holds North Sydney back is a lack of diversification in real estate. In the same way that suburban, dormitory suburbs are quiet because people go there to sleep, the streets of North Sydney historically run with tumbleweed on the weekend: people go there to work in commercial office buildings, and not much else.
This is supported by low retail turnover growth, which suggests the North Side of the bridge could benefit from a retail re-vamp. Mastercard retail location insights showed that in the year to January 2017, the North Sydney and Crows Nest regions were in the bottom 5% of retail growth rankings in NSW.
Cityscope sales records show that North Sydney transactions have been dominated by office buildings and units. Interestingly, the dotted trend line shows that over the last five years, the share of commercial sales has gradually given way to other kinds of non-residential space, particularly retail and hotels.
Bringing more entertainment, retail and residential space to North Sydney would add value and foot traffic to the region outside of office hours. Indeed, the Sydney housing boom has fuelled residential development applications in the region, and in turn new residents to the area will need places to shop and be entertained. This could in turn see extended retail hours and open up North Sydney to other non-residential real estate opportunities.
Together with efforts by the state government to spread employment across the Sydney metropolitan, North Sydney presents a promising area for commercial real estate growth in the coming years.
Commercial Research Analyst