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Stockland snaps up North Sydney towers in $121m deal

Sydney Morning Herald logo Sydney Morning Herald 8/11/2019 Carolyn Cummins
a view of a city: The strategic location, relative affordability and access to transport in North Sydney makes the area prime for tenants. © Supplied The strategic location, relative affordability and access to transport in North Sydney makes the area prime for tenants.

Diversified developer Stockland has expanded its footprint in the buoyant North Sydney office market with the purchase of two skyscrapers in the core precinct for a combined $121 million.

The assets at 118 Walker Street and 122 Walker Street are adjacent to Stockland's existing office building at 110 Walker Street and, once completed, will more than double Stockland’s existing North Sydney exposure.

It will create an amalgamated landholding of almost 2300 square metres of land and about 10,000 square metres of lettable space within the prime North Sydney CBD, in close proximity to the future Victoria Cross Metro Station.

There were two separate vendors and there is potential to develop the combined sites into about 60,000 square metres of prime office space.

Stockland chief executive Mark Steinert said the acquisitions are in the heart of the North Sydney business district, "which continues to strengthen and enjoys strong institutional interest".

"These acquisitions will increase our exposure to the strong office market, with a view to unlocking additional future development potential for new office and street-level retail."

Office space in North Sydney is in high demand from an increasingly wide range of tenants due to its strategic location, relative affordability and access to transport, according to the latest research from Knight Frank.

The Knight Frank North Shore Office Market Overview September 2019 found North Sydney was particularly attractive to technology and media companies with these tenants accounting for 34 per cent of leasing activity since 2018.

"Strong demand from tech companies is expected to drive positive take-up levels over the next two years in North Sydney," said Knight Frank partner and head of office leasing North Shore Giuseppe Ruberto.

"Microsoft, SAP, Nextgen.net, Nokia, Citrix and Zurich are a few recent examples of companies trying to scale and set up headquarters in the area."

North Sydney's office vacancy rate, formerly in the double digits, now sits at about 6 per cent. The area had a redevelopment phase, with older office towers being converted into apartments.

Mr Ruberto said the new Sydney Metro rail project and planned pipeline of new office projects in the area was providing a further uplift to demand levels and resulting in new market entrants.

"North Sydney’s office rents are running at a 27 per cent discount – on a gross basis – to the Sydney CBD, which has continued to support recent demand fundamentals," he said.

While rents in the North Sydney office market are more affordable than the CBD, they are gradually catching up, with rising tenant demand leading to rental growth rates higher than the Sydney CBD, according to the Knight Frank research.

But with the Sydney CBD at record low vacancy, tenants are heading back over the Harbour Bridge in droves. Dexus has built and leased 100 Mount Street to NBN, while the Nine Entertainment Co – the owner of this publication – is moving to the new 1 Denison tower in mid to late 2020.

Stockland chief executive commercial property, Louise Mason, said demand and supply fundamentals for workplace assets along the east coast remain strong.

"North Sydney is undergoing a significant transformation, with infrastructure investment including the new Victoria Cross Metro Station development driving increased tenant demand for the precinct," Ms Mason said.

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