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The Sydney office market is benefiting from the tech sector.

According to Knight Frank's latest report, office space in North Sydney is in high demand from a growing number of tenants due to its strategic location, relative affordability, and proximity to public transportation. find property qatar

According to the Knight Frank North Shore Office Market Overview September 2019, technology and media companies have been especially attracted to North Sydney, accounting for 34% of leasing activity since 2018.

"Strong demand from tech companies is expected to drive positive take-up levels in North Sydney over the next two years," said Giuseppe Ruberto, Partner and Head of Office Leasing North Shore at Knight Frank.

"Microsoft, SAP,, Nokia, Citrix, and Zurich are just a few of the companies that have recently attempted to scale and establish headquarters in the region."

Although technology companies are driving leasing demand in North Sydney, other sectors are also involved, with financial and insurance services accounting for 20% of leasing activity and professional, research, and technical services accounting for 15%.

As more occupiers rethink how they use office space, coworking and versatile office operators have added North Sydney to their target market. WeWork recently opened its first North Sydney building, occupying 4,100 square metres in 50 Miller Street, and Victory Offices has leased space in 100 Mount Street."

Mr Ruberto said that while North Sydney was already well-connected to the Sydney CBD and other North Shore markets, the new Sydney Metro rail project and a proposed pipeline of new office projects in the region were boosting demand and attracting new entrants.

"On a gross basis, North Sydney's office rents are 27 percent lower than the Sydney CBD, which has continued to help recent market fundamentals," he said.

According to Knight Frank study, while rents in the North Sydney office market are currently lower than those in the CBD, they are increasingly catching up, with increasing tenant demand contributing to rental growth rates that are higher than those in the Sydney CBD.

As of July 2019, the year-over-year prime rental growth rate was 200 basis points higher than Sydney on a gross basis, according to Knight Frank Associate Director Research Katy Dean.

"Over the past 12 months, North Sydney's prime and secondary markets saw gross effective rental growth of 9.2 percent and 8.5 percent, respectively."

Ms Dean said the pipeline of new stock for the coming year remained strong, with more than 155,000 square meters of new and refurbished stock currently under construction in North Sydney and Macquarie Park, with completion anticipated by the end of 2020.

Despite ticking upwards, she said, demand for prime space in North Sydney was driving high commitment rates and restricting potential supply, and vacancy was still below the 10-year average of 8.6 percent.

Strong tenant demand in North Sydney has led to continued investor demand for office assets in the region, according to Knight Frank Partner, Institutional Sales Tyler Talbot.

"As investors scramble for core and core-plus opportunities in North Sydney, the demand for prime income-yielding assets remains high, putting downward pressure on yields," he said.

"As of July 2019, average prime yields have tightened by 25.8 basis points year-on-year to 5.00 percent, setting a new high for North Sydney."

The yield spread between prime Sydney CBD and North Sydney assets has narrowed to 45 basis points, almost half its historical trend, reflecting the high rental growth rates seen over the last two years, thanks to sustained investor demand for North Sydney assets.

Additional interest rate and bond yield cuts later this year could lead to more compression, potentially extending the growth cycle."

According to the Knight Frank North Shore Office Business Overview September 2019, offshore money continues to enter the North Shore markets, with offshore groups accounting for over 85% of the $2.5 billion in investment value in the 12 months to July 2019.

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