North Shore Office Market Indicators As at January 2019

RESEARCH

North Sydney awaits the completion Gross face rents in North Sydney Investment volumes across the of over 145,000 sq m of new office continued to rise in conjunction with North Shore markets totalled $2.14 space, which will bolster absorption falling incentives over the past 12 billion, with over 80% of capital levels and deliver new entrants to months. The short term supply drought coming from offshore buyers in the the market over the next two years. will see rental growth remain strong. 12 months to January 2019.

NORTH SHORE OFFICE MARCH 2019 RESEARCH

7 5

2 Nest 1 3

17 10 19 9 15 13 18 16 11

14 12

Source of Map: Knight Frank

Source of Map: Knight Frank North Sydney Macquarie Park/North Ryde

100 Mount St - 40,600m² [NBN Co]^ 45-61 Waterloo Road - Bld C - 35,000m² [GPNSW] 11-17 Khartoum Rd - 52,000m² 1 9 17 Dexus - Q2 2019 - 85% committed John Holland - Q4 2019 - 70% committed Stockland - Mooted

2 1 Denison St - 65,021m² [Nine Entertainment]# 10 Stage 2 97 Waterloo Rd -15,000m² [Schneider] 18 Epicentre at Riverside, 6-8 Julius Ave - 34,194m² Winten Property - H2 2020 - 50% committed Goodman - H2 2020 ISPT - Mooted

3 118 Mount St - 21,000m² [Zurich] 11 39 Delhi Rd - 30,000m² 19 45-61 Waterloo Road Bld - A,B,D,E,F - 82,000m² Zurich - H2 2020 - 75% committed Stockland - Mooted John Holland - Mooted

4 73 Miller Street - 19,000m² 12 1 Rivett Rd (Stage 2) - 11,380m² ProeprtyLink - H1 2020 Pathway Property - Mooted 13 396 Lane Cove Rd - 76,100m² Crows Nest/St Leonards Frasers Property / Winten Property Group - Mooted

5 472-486 Pacific Hwy - 4,600m2 14 29-35 Epping Rd -14,500m² Mirvac - Q4 2019 Harvey Norman Holdings - Mooted 15 76 RNS Hospital site - 25,000 m² [NSW Govt. 100%] 271 Lane Cove Rd - c.34,000m² NSW Government - H12021 Mirvac - Mooted 16 7 88 Christie St (Fronting Pacific Hwy) - 17,000m²** 8-10 University Ave - c.50,000m² * JQZ - 2020+ Macquarie University - Early Feasibility

8 Lot 3, Broadcast Way, Artarmon - 14,000m² > DA Approved Site

Record development activity The boom in new developments over the Over 145,000 sq m of new and Although no new supply was added to coming two years represents the largest refurbished office stock in North the North Sydney market in 2018, the supply addition over any two year period Sydney is set to come online over precinct is transforming. Over the next for the North Sydney market. The last the next two years, with 50% two years, the 145,000 sq m of record period was between 2009 and already pre-committed this commercial works currently in the 2010 when 78,000 sq m was added. expected to increase over the next pipeline is due to reach completion. The Although new supply will see a short- six months. three major projects under construction; term rise in backfill space, it is expected St Leonards recorded its highest 100 Mount Street (41,600 sq m, 85% to be a drawcard for tenants relocating six monthly absorption rate since pre-committed to NBN Co and Laing from neighbouring North Shore markets 2006, with 11,512 sq m of positive O’Rourke - Q2 2019), 1 Denison Street and the Sydney CBD. net absorption recorded over the (65,021 sq m, 30% pre-committed to six month period to January 2019. Nine Entertainment and SAP - Mid 2020) and 118 Mount Street (21,000 sq Prime and secondary markets in m, 75% pre-committed to Zurich—Late Chatswood recorded net effective 2020). rental growth of 12.1% and 9.5% FIGURE 1 respectively over the past 12 In addition to new development, North Sydney Office Supply months. landlords are repositioning existing Per six month period (000’ sq m)

Macquarie Park recorded its assets with major refurbishment plans 80,000 lowest overall vacancy rate since also underway. 73 Miller Street (15,000 2005 of 4.8%, down from 5.6%, sq m) is expected to be withdrawn from 60,000 six months prior. mid-2019 to undergo a full 40,000 refurbishment, including an expansion in

its office floor area to 17,500 sq m when 20,000 it comes back online from mid-2020. The refurbishment will see major tenant 0 NSW Department of Health relocate to -20,000 100 Christie Street in St Leonards on a short-term lease. -40,000

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21

Gross Supply Withdrawals Net Supply

Senior Analyst Source: Knight Frank Research/PCA

TABLE 1 North Shore Office Market Indicators as at January 2019

Total Vacancy Annual Net Avg Net Average Outgoings Core Market Market Grade Stock Rate Absorption Face Rent Incentive ($/sq m) Yield (%) (sq m)^ (%)^ (sq m)^ ($/sq m) (%)*

North Sydney Prime 262,215 3.5 12,781 792 133 21.4 4.75 - 5.50

North Sydney Secondary 547,215 8.3 -16,867 653 129 19.9 5.25 - 5.50

North Sydney Total Market 809,430 6.8 -4,086 698 131 20.4 4.75 - 5.50

Crows Nest/St Leonards Prime 102,699 1.9 14,187 596 130 21.3 5.25 - 6.00

Crows Nest/St Leonards Secondary 204,182 8.2 415 540 105 22.3 5.75 - 6.25

Crows Nest/St Leonards Total Market 306,881 6.1 14,602 559 118 21.9 5.25 - 6.25

Chatswood Prime 157,412 3.9 4,000 539 128 21.3 5.25 - 6.00

Chatswood Secondary 121,507 9.1 -2,355 470 107 22.0 5.50 - 6.00

Chatswood Total Market 278,919 6.2 1,645 509 119 21.6 5.25 - 6.25

Macquarie Park Prime 644,824 3.5 3,582 398 100 22.0‡ 5.75 - 6.00

Macquarie Park Secondary 214,210 8.7 725 335 100 20.0‡ 6.00 - 6.50

Macquarie Park/North Ryde Total Market 859,034 4.8 4,307 382 100 21.5‡ 5.75 - 6.50

Source: Knight Frank Research/PCA * Incentives are on a Gross basis ‡ Incentives are on a Net basis ^ As at January 2019 Note. Average data is on a weighted basis. Yield ranges reflect the average lower and upper yields for a select basket of office assets in each market and grade Grade: Prime includes modern and A-Grade stock whilst Secondary includes B, C and D quality Grade. 3 NORTH SHORE OFFICE MARCH 2019 RESEARCH

Tenant relocations temper (5,600 sq m), Nine Entertainment (15,500 Rental growth continues absorption levels sq m), NBN (20,000 sqm), Lang O’Rouke Low prime vacancy in North Sydney, in Absorption levels across the North (4,600 sq m) and Zurich (15,750 sq m), conjunction with office rents running at a Sydney market in the six months to there are a number of large tenant 28% (gross basis) discount to the January 2019 measured negative 4,644 mandates in the market that will have Sydney CBD, has underpinned prime sq m, resulting in negative absorption positive implications for absorption levels rental growth. Average prime gross face annually of 4,086 sq m. Whilst the first over the next 24 months. Tenants rents have increased by 4.7% over the half of 2018 saw strong absorption levels currently seeking options in North Sydney past year to $925/sq m ($792/ sq m net in the prime market of 16,347 sq m, this include Ooh Media (5,000 sq m), UGL face) as at January 2019. In addition, was not the case in the second half of Group (7,500 sq m), Microsoft (10,000 sq average prime incentives dropped 160 2018 with negative absorption of 3,566 m) and Fairfax Media (5,000 sq m). bps to 21.4%, resulting in gross effective sq m, which primarily stemmed from rental growth of 8.6% YoY. MasterCard vacating its largest North Vacancy remains below Sydney office at 100 Arthur Street and historical average In the secondary market, average gross relocating to 72 Christie Street, St The North Sydney overall vacancy rate face rents have risen by 5.5% YoY to Leonards. increased slightly in the six months to $782/sq m ($653/sq m net face) as at January 2019 from a 16 year low of 6.3% January 2019. Average secondary In the secondary market negative to 6.8%. Tenant relocation and negative incentives have dropped from 22% to 19 absorption levels were recorded for the absorption over the second half of 2018 -20% YoY, as at January 2019, boosting sixth consecutive period, with absorption has underpinned the uptick in vacancy. gross effective rents by 8.3% to measure totaling negative 1,078 sq m for the six Whilst vacancy has increased, it is still $626/sq m. months to January 2019. The negative 182bps below the 10-year average of absorption levels continue to be driven 8.6%. Record level of investment by the withdrawals of stock for Investment volumes into the North alternative uses. The withdrawal of 160 In the prime market, vacancy levels Sydney office market in 2018 reached Pacific Highway (1,000 sq m) for increased from 2.1% to 3.5% in the six the highest level in a decade with $1.58 residential conversion, in addition to months to January 2019. Within the prime billion transacting, a 90% increase on MasterCard vacating its second (smaller) market, Premium Grade vacancy has 2017 volumes. This was driven mainly by office location in North Sydney at 165 climbed from 1.9% to 6.0%, although this offshore capital, accounting for 92% of Walker Street, were the catalyst for the has stemmed soley from sublease total volumes. inflated negative absorption over the vacancy. Similar to premium grade period. vacancy, available sublease space has The strong investment volumes and increased A Grade vacancy rate by 90bps confidence in the North Sydney market Pre-commitments to bolster to 3.1%, as at January 2019. The has fuelled yield compression. As at future absorption secondary market however remained January 2019, prime assets in North New supply over the next two years will static with vacancy unchanged at 8.3%. Sydney average 5.10%, 34bps lower see over 145,000 sq m added across than 12 months prior. The yield spread Looking ahead, with the strong absorption four developments. The level of pre- between prime Sydney CBD and North levels on the horizon and current level of commitment has already reached 50% Sydney has compressed to just 52bps. large tenant enquiry we anticipate overall and based on current demand levels, Secondary market yields currently range vacancy to trend towards 6% over the potentially could be fully committed prior between 5.25% to 5.50%. This has next twelve months before incoming new to practical completion. In addition to resulted in a prime and secondary yield supply in 2021 results in a slight upswing the major pre-commitments from SAP spread of just 20bps. in the headline rate.

FIGURE 2 FIGURE 3 FIGURE 4 North Sydney Net Absorption & Vacancy Average Gross Face Rents Average Core Market Yields Per six month period (000’s sq m, %) Prime & Secondary, North Sydney North Sydney

40 15% 1,200 10.0% Forecast Forecast 9.5% 30 10% 1,000 9.0%

20 8.5% 800 5% 8.0% 10 7.5% 600 0 7.0% 0% 6.5% -10 400 6.0% -5% 5.5% -20 200 5.0%

-30 -10% 4.5%

Jan-19 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-20 Jan-21

Jan-17 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-18 Jan-19

Jan-17 Jan-18 Jan-19 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-20 Jan-21 NET ABSORPTION (SIX MONTHS TO) VACANCY RATE (RHS) Jan-09 AVG PRIME YIELD AVG SECONDARY YIELD

PRIME SECONDARY PRIME 10Y AVG SEC 10Y AVG

Source: Knight Frank Research/PCA Source: Knight Frank Research Source: Knight Frank Research 4

New tenant demand in the first half of 2018, we understand Yields continue to firm underpins absorption trend that more than half of this has now been As a January 2019, average prime yields In contrast to the mid-2000s, recent leased, including three floors to Hireup. range between 5.50% and 6.00%, absorption has been demand led, not representing a 45 bps compression over supply led, with take-up of existing prime Lowest prime vacancy rate the previous 12 months. Secondary space driving down the headline vacancy on the north shore market yields average 5.75% to 6.25%, rate to 6.6% (as at January 2019), down Above-average absorption of prime representing a 50bps compression on the from 11.1% at the same time last year. space is creating a two-tiered market same time last year. dynamic between prime and secondary, 11,512 sq m of positive net absorption which is being reflected in the individual Property Bank Australia divested 154 was recorded over the six month period vacancy rates. Prime vacancy Pacific Highway in June 2018, a B grade to January 2019, the highest six monthly experienced its largest decline in 15 10-storey tower on a 6.0% core market absorption rate since January 2006. years, falling from 14.8% in July 2018 to yield. The sale recorded a rate of 1.9% in January 2019. While secondary $9,367/sq m highlighting the strong Leasing absorption trends were led by vacancy has risen to 8.2% over the same demand for secondary assets along this MasterCard securing 11,259 sq m at 72 period, up from 7.4% in July 2018, it is corridor. Christie Street to consolidate staff from still well below its long-run historical their Rozelle and North Sydney offices. average of 11%. 72 Christie Street has recently sold for $157.55 million to UOL Group, a While low prime vacancy (1.9%) is limiting Rental growth accelerating Singaporean listed property company, on tenant options, particularly for contiguous Given the level of new demand and a core market yield of 5.0% and a record space, there has been a notable increase declining vacancy rate recently, there has rate per square metre of $13,993 for the in new demand for the precinct which been strong rental growth over the past precinct. The building previously sold in bodes well for future development plans. 12 months. Average prime gross face 2017, was repositioned by Proprium rents have increased 7.9% to $726/sq m Capital Partners last year after securing HammondCare, have secured two floors and secondary gross face rents have MasterCard as the new anchor tenant on in 207 Pacific Highway, will be relocating increased 4.8% to $645/sq m over the 12 a 10-year lease. shortly from the Sydney CBD. Only About months to January 2019. With prime Children also secured 1,300 sq m at 207 incentives falling from 24.5% a year ago Pacific Highway, relocating from to 21.3%, net effective rents have surged McMahons Point last year, expanding 15.2% YoY to $442/sq m. their footprint in the move. More recently, Virgin Active has pre-committed to lease In the secondary market, net face rents a full floor (c1,200 sq m) in the two-tower increased 5.1% YoY to measure $540/sq St Leonards Square development at 472 m as at January 2019. Incentives have Pacific Highway when completed later dropped by 240bps to average 22.3%. this year. This resulted in net effective rental growth of 10.7% YoY to $396/sq m. Clemenger BBDO has relocated from 120 Pacific Highway to Walsh Bay, leaving behind c5,100 sq m of backfill space. While this partially offset absorption gains

FIGURE 5 FIGURE 6 FIGURE 7 Net Absorption & Vacancy Average Gross Face Rents Average Prime Core Market Yields Per six month period (000’s sq m, %) Prime & Secondary ($/sq m) Prime & Secondary, Crows Nest/St Leonards

Forecast 10% 30 000's 20% 900

800 15% 9% 20 700 10% 10 600 8% 5% 500 0 0% 7% 400 -5% -10 300 6%

-10% 200 -20 5% -15% 100

-30 -20% 4%

Jan-17 Jan-20 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-18 Jan-19 Jan-21

Jan-09 Jan-16 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 NET ABSORPTION 6 Mths to… (m²) - LHS TOTAL VACANCY (%) - RHS PRIME SECONDARY PRIME SECONDARY

Source: Knight Frank Research/PCA Source: Knight Frank Research Source: Knight Frank Research 5 NORTH SHORE OFFICE MARCH 2019 RESEARCH

As at January 2019, the office vacancy rate Rental growth is forecast to continue over measured 6.2%, down from 6.8% a year the next two years in anticipation of the prior, which has been driven by positive stage 1 metro opening in mid 2019 Positive tenant demand yearly absorption of 1,645 sq m. In the followed by stage 2 in 2024 providing The pent-up demand for office space in prime market specifically, vacancy has increased connectivity to the Sydney CBD. Chatswood has resulted in positive net tightened to its lowest level since 2007, declining from 6.5% to 3.9% in the 12 absorption of 1,645 sq m in the 12 months Solid investment activity months to January 2019. Looking ahead, to January 2019. By grade, the prime With no traction in the first half of 2018, with no supply in the pipeline, the market recorded positive absorption of investment activity in Chatswood finished Chatswood vacancy rate is forecast to 4,000 sq m over 2018. However, in the strongly at the back end of 2018, trend towards 5.5% by mid-2020. recording $338.7 million in office sales secondary market negative absorption of across three assets, almost doubling the 2,355 sq m was recorded in the 12 months Strong net effective rental 2017 transaction volumes of $170 million. to January 2019. Positive absorption in the Two of Chatswood’s major office buildings prime market stemmed from the lack of growth transacted at the end of 2018; 67 Albert prime grade leasing options in conjunction Recent rental growth in Chatswood has been relatively firm given the reducing Street purchased by Mapletree for $158 with limited availability of efficient vacancy rate and continued office demand. million on a core market yield of 5.69% contiguous floor plates. The wider context of a supply constrained and 465 Victoria Avenue acquired by

CBD market and a tight prime market in Centuria Metropolitan REIT for $166.50 Tenant demand and leasing activity have North Sydney are adding to the local million on a core market yield of 5.75%. been diverse over the last 12 months with market momentum in Chatswood. lease deals done across a range of More recently, Chatswood’s trophy asset, different sectors. Of the observed lease In the 12 months to January 2019, average The Zenith at 821 Pacific Highway has deals over the period, 37% have been in prime gross face rents increased by 5.9% come to market. Boasting over 44,000 sq the Public Administration and Safety to $667/sq m ($539/sq m net). With prime m of prime office space, the asset is fully sector including Sydney North Health incentives falling from 24.3% a year ago to leased on a 4.3 year WALE. Network (923 sqm at 475 Victoria Avenue). 21.3%, prime net effective rents have Professional services (27%) and Health grown significantly by 12.1% YoY. Prime Yields reach tightest level on care and social assistance (14%) rents are forecast to continue to grow represented the next largest share of lease record strongly over the next 12 months, with a deals over the 12 months to January 2019. After compressing a further 52bps over the further 6% in face rental growth 12 months to January 2019, prime office anticipated. Similar rental growth is being assets are trading well under 6% and at a Demand driven fall in vacancy experienced in the secondary market with level that has not been seen before in this Over the past two years, the Chatswood gross face rents up 5.5% over the year to market, reflecting Chatswood’s tightly held office market has experienced a demand $577/sq m ($470/sq m net). On a net status. The strong rental growth profile of driven fall in vacancy. Positive absorption effective basis, rental growth of 9.5% YoY Chatswood, coupled with its relative value has been recorded throughout the past has been recorded with secondary in comparison to other major CBD four half year reporting periods, incentives falling to 22% (from 24.2% a markets, has made it an attractive underscored by a steady flow of lease year ago). destination for investors. deals.

FIGURE 8 FIGURE 9 Chatswood Net Absorption & Vacancy Average Gross Face Rents Chatswood Lease Deals Per six month period (000’s sq m, %) Prime & Secondary, Chatswood ($/sq m) By Size Bracket —2018

Forecast 800 Forecast 15 000's 20%

700 5001-10000 15% 9% 10 600 2501-5000 10% 9% 0-500 5 500 36% 5% 400 0 0% 300 1001-2500 23% -5% -5 200 -10% 100 -10 -15% 501-1000 0 23%

-15 -20%

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21

Jan-09 Jan-14 Jan-10 Jan-11 Jan-12 Jan-13 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21

NET ABSORPTION 6 Mths to… (m²) - LHS TOTAL VACANCY (%) - RHS PRIME SECONDARY

Source: Knight Frank Research/PCA Source: Knight Frank Research

Low prime availability limits John Holland secured a 3.2ha site in 2017 On an annual basis (to Jan-19), average absorption as part of the Government’s asset prime gross face rents have grown 4.2% Macquarie Park recorded negative net recycling program that could deliver to $498/sq m ($398/sq m net face). absorption of 3,754sq m in the six c117,000 sq m of office space to Average prime incentives have declined months to January 2019, mostly due to Macquarie Park. With a pre-commitment from 23-24% net to c22% over the year. the withdrawal of 10,000sq m of (leaseback) to the State Government for In the secondary market, average gross secondary space at 112 Talavera Road 25,000 sq m and an option to take further face rents increased 2.6% YoY to $435/ for residential conversion. space, the first stage of the development sq m ($335/sq m net face) and the is currently underway with practical average incentive decreased from 25% Tenant demand has tempered relative to completion expected in Q1 2020. net in January 2018 to c20% in January the first half of 2018 when 8,061 sq m 2019. On a building by building was absorbed. Some contraction has Additionally, more than 130,000 sq m of proposition there appear to have been occurred on the back of tenants putting new office space is mooted pending greater reductions in average secondary expansion/relocation plans on hold due development approval and/or tenant pre- incentives due to shortage of prime to a lower availability of prime options to commitments, including Macquarie space and potentially, an increase in lease. As a result, prime vacancy has University’s Innovation Hub (50,000 sq m) renewal activity as tenants have limited barely shifted in six months to January, and the Frasers/Winten site, formerly options in the short-term. moving from 3.4% to 3.5%, to maintain known as the Dick Smith site, at 396 Lane its lowest vacancy rate since tracking Cove Road (staged up to 76,100 sq m). Investment volumes buoyed began in 2005. by $231.2m Dexus sale Vacancy still at record low The low level of investment volumes While the scope of prime space available The headline vacancy rate has declined during 2018 has been indicative of the to lease, especially for larger tenant for the third consecutive six month period tightly held nature of Macquarie Park/ requirements, is beginning to limit the dropping from 5.4% in July 2018 to 4.8% North Ryde against its North Shore flight to quality trend within the precinct, in January 2019, primarily due to stock counterparts. However, in February 2019, it bodes well for developer confidence on withdrawals. This is the lowest headline Dexus announced that it had sold a future projects seeking pre-commitment. vacancy rate recorded in Macquarie Park 100% interest in the campus style three since 2005 and well below its long-term building office asset at 11 Talavera Road Pent-up tenant demand for average of 9.0%. off-market for $231.2 million, a slight prime could fuel pipeline premium to its December book value. Schneider Electric has plans to Prime demand benefits The transaction, which is due to settle in consolidate multiple sites into a new secondary rents June 2019, is the largest recorded since building in Macquarie Park and has pre- While strong take-up in the first half of Singapore’s AIMS AMP Capital Industrial committed c7,000 sq m of the stage 2 2018 saw above-average gross face rental REIT acquired a half stake in Optus Goodman development at 97 Waterloo growth, the rate of growth has begun to Centre in 2013 for $184.4 million. Road (15,000 sq m), which will ease back, with no movement in average commence construction by mid 2019. prime rents over the last two quarters. Prior to this, the last transaction in the precinct was in June 2017, when Goodman sold the newly built 8 Khartoum Road office building to Ogen FIGURE 11 FIGURE 12 Nominees, a local investor, for $93.5 Macquarie Park/North Ryde Net Absorption A-Grade Net Rents & Incentives million on a reported yield of 5.5%. & Vacancy Macquarie Park/North Ryde, Prime Goodman also acquired 56-58 Waterloo Per six month period (000’s sq m, %) Road in 2017 for $40.5 million. The

70 Forecast 14% 350 35.0% property was previously owned and 60 12% occupied by Novartis Pharmaceutical 300 30.0% 50 10% who relocated next door and the property

40 8% 250 25.0% is now fully leased to Macquarie University. 30 6% 200 20.0%

20 4% 150 15.0% As at January 2019, average prime yields 10 2% range between 5.75% and 6.00%, 100 10.0% 0 0% representing a 25 bps tightening over the -10 -2% 50 5.0% previous 12 months. Secondary market -20 -4% yields range from 6.00% to 6.50%, 0 0.0%

-30 -6% representing a 50bps compression on

Jan-10 Jan-19 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-20 Jan-21

Jan-09 the same time last year.

Jan-18 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-19 Jan-20 Jan-21 INCENTIVE % (RHS) NET EFFECTIVE RENT NET ABSORPTION 6 Mths to… (m²) - LHS TOTAL VACANCY (%) - RHS

Source: Knight Frank Research/PCA Source: Knight Frank Research

7 NORTH SHORE OFFICE MARCH 2019 RESEARCH

TABLE 2 Recent Leasing Activity North Shore and Macquarie Park Face Rent Term Address Region Area (m²) Lease Type Tenant Start Date Net ($/m²) (yrs)

118 Mount Street North Sydney 16,000 770 10+5+5 Pre-comm Zurich Financial Nov-20 40 Mount Street North Sydney 8,100 U/D 10 Renewal Coca Cola Amatil Jul-20 1 Denison Street North Sydney 5,600 750 10 Pre-comm SAP Jan-21 1 Denison Street North Sydney 15,500 U/D 12 Pre-comm Nine Entertainment H2 2020 472 Pacific Highway St Leonards 1,200 770 10 New Virgin Active Dec-19 203 Pacific Highway St Leonards 3,500 620 10 Renewal Cardno Sep-19 205 Pacific Highway St Leonards 1,324 580 5 New Next Media Apr-19 50 Miller Street North Sydney 4,100 U/D 12 New WeWork Apr-19 67 Albert Street Chatswood 139 575 5 New FirstPharma Dec-18 475 Victoria Avenue Chatswood 240 550 5 New Shiji Nov-18 3 Richardson Place Macquarie Park 156 315 5 New Swift Computers Oct-18 76 Berry Street North Sydney 1,046 670 5+5 New Microfocus Oct-18

TABLE 3 Recent Sales Activity North Shore Core Price $/m² WALE Sale Address Region Market NLA (m²) Vendor Purchaser ($ mil) NLA (Yrs) Date Yield (%) National Pension M&G Real Estate JV 40 Mount Street (50%)* North Sydney 226.5 5.00 28,552 15,873 6.7 Dec-18 Service ICPF Proprium Capital 72 Christie Street St Leonards 157.5 5.00 11,259 13,993 9.7 UOL Group Dec-18 Partners Mapletree 67 Albert Avenue^ Chatswood 158.0 5.69 15,180 10,707 3.4 CorVal Nov-18 Investment 465 Victoria Avenue- Chatswood 166.5 5.75 15,158 10,646 5.0 Hines Centuria Oct-18

80 Mount Street North Sydney 71.0 5.42 6,204 11,444 2.0 PropertyLink CKK Enterprises Sep-18

154 Pacific Highway St Leonards 60.20 6.0 6,427 9,367 2.1 Property Bank Aust. NSW Farmers May-18

100 Miller Street (50%) North Sydney 300.0 4.73 26,967# 16,249 3.4 Redefine Global Early Light Int. May-18

Source: Knight Frank Research n refers net g refers gross # office component only ^Leasehold - Part of Portfolio *M&G Real Estate acquired a 25% stake in the asset whilst the Investa Commercial Office Fund acquired a further 25% stake in the building to increase its interest from 50% to 75%.

RESEARCH Ben Burston Partner, Head of Research and Consulting +61 2 9036 6756 Ben [email protected] Katy Dean Associate Director +61 2 9036 6612 [email protected]

Marco Mascitelli Senior Analyst +61 2 9036 6656 [email protected]

NSW Angus Klem Partner, Head of North Sydney +61 2 9028 1110 [email protected]

OFFICE LEASING David Howson Partner, Head of Office Leasing, Australia +61 2 9036 6697 [email protected]

Giuseppe Ruberto Partner, Head of Office Leasing, North Sydney +61 2 9028 1115 [email protected]

Steve Clapham Director, Office Leasing +61 2 9028 1117 [email protected]

CAPITAL MARKETS Tyler Talbot Definition: Partner, Institutional Sales, Sydney Metro Core Market Yield: The percentage return/yield analysed when the assessed fully leased net market +61 2 9028 1148 income is divided by the adopted value/price which has been adjusted to account for property [email protected] specific issues (i.e. rental reversions, rental downtime for imminent expiries, capital expenditure, current vacancies, incentives, etc). Arland Domingo Director - Metropolitan Sales Knight Frank Research provides strategic advice, consultancy services and forecasting +61 2 9028 1122 [email protected] to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the Paul Roberts need for expert independent advice customised to their specific needs. Partner, Joint Head of Institutional Sales, Australia +61 2 9036 6872 [email protected]

Ben Schubert Partner, Joint Head of Institutional Sales, Australia +61 2 9036 6870 [email protected]

Graeme Russell Partner, Institutional Sales, Australia +61 2 9036 6618 [email protected]

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