RESEARCH & CONSULTING

Key Findings The Frenchs Forest Employment Area is set to experience employment growth of 1,685 jobs between wider land use implications of the proposed 2016 and 2021, 84% within Market in Context new hospital. It will involve a detailed analysis white collar industries Located 15km north from , of opportunities and constraints, to properly Frenchs Forest is part of 's northern plan for future development around the new With the new Northern beaches region. The area is being hospital. It is envisaged that this plan will Beaches Hospital opening in transformed through the construction of a recommend the rezoning of a number of 2018, the bulk of employment growth will stem from healthcare state funded hospital, which is the first major parcels of land around the site for medium providers. This is expected to investment in public health infrastructure on and high density housing. create substantial demand for the northern beaches for decades, and a long- medical office suites held ambition for the local community. New residential development is expected to have several positive implications to the local Additional office demand in the The Northern Beaches Hospital is being built economy and office markets. From a area is anticipated to total just on a 6.5 hectare Frenchs Forest site, bound utilisation perspective, a larger resident under 60,000m² over the next 20 by Frenchs Forest Road West, Warringah population is anticipated to result in greater years, with the potential to be Road, Wakehurst Parkway and The Forest demand for employment and a focus of higher as existing medical High School. The Northern Beaches Hospital Government spending, giving local residents professionals relocate to the area project, which will complete in 2018, will the ability to work closer to where they live deliver level 5 hospital services to the local (and therefore fulfilling a state Government Frenchs Forest has a relatively community; with 488 beds, a large emergency objective). Alternatively, compared to office affordable rental base with department, theatres and a GP clinic on site. workers, permanent resident spend extends prime rents substantially below beyond working hours, effectively providing that of competing non-core Alongside the delivery of new health more support for retail provisions, leading to a suburban markets such as infrastructure the NSW Government is more prosperous local economy. Epping and Norwest. planning to invest $400 million in road Recent sales in the office infrastructure upgrades scheduled to be With the area’s amenity expected to improve market have traded at circa completed in time for the hospital opening. greatly off the back of a larger resident 10%, however depending on the population and further investment into large opportunity, the area’s prime is also preparing the format retail, including a potential Masters assets are likely to trade in a Northern Beaches Hospital Precinct Structure store, office tenants will become more range of 8.00% to 9.25% Plan. The purpose of the Plan is to look at the attracted to the area.

As at 2011, the Frenchs Forest Employment Area (see back page for Number of Businesses by Main Frenchs Forest Employment Area definition) supported just under 10,000 White Collar Industries Growth & Office Demand jobs, 36% of which were within white Frenchs Forest - Belrose (June 2014) White Collar Industries (2011-2031) collar industries (those who require 1,600 30,000 Professional, Scientific & office space). With the area being home Technical Services 1,400 to a large number of logistical and 25,000 Financial & Insurance Services warehousing operators, which 1,200 predominantly sits in conjunction to Rental, Hiring & Real Estate 20,000 Services 1,000 office provisions, wholesale trade Administrative & Support employment represents 26% of the Services 800 15,000 area’s employment base. Health Care & Social Assistance 600 10,000 Information Media & At present, health care and social Telecommunications 400 5,000 assistance workers account for 12% of Education & Training 200 all jobs within the Frenchs Forest Public Administration & Safety - - Employment Area, however its share of 2011-2016 2016-2021 2021-2026 2026-2031 total jobs is set to rise significantly once 0 100 200 300 400 500 600 700 FFEA GROWTH (LHS) FFEA FUTURE OFFICE DEMAND - M² (RHS) the Northern Beaches Hospital is completed in 2018. Jobs growth in the health care industry will not only stem from core hospital functions such as nurses, doctors, surgeons, etc. but also does not take into account demand allied health professionals such as Demand Projections stemming from existing professionals in physiotherapists and chiropractors. With other precincts relocating to the area. At these key workers requiring office space Off the back of the completion of the present, medical and allied health close to the hospital, they will provide a Northern Beaches Hospital, the Frenchs professionals occupy office space key source of office demand in the Forest Employment Area is set to throughout the Northern Beaches in Frenchs Forest Employment Area going experience significant jobs growth over areas such as Frenchs Forest, Brookvale, forward. the next 20 years, underpinned by robust , Mona Vale and Manly. With the gains in the health care industry. existing hospital locations on the What Business are Northern Beaches being at a Over the 20 years to 2031, an additional considerable distance from one another Located in the Area 4,265 jobs are expected to be created (all with one located in Mona Vale and the industries) in the Frenchs Forest other in Manly, there is no single location The Frenchs Forest Employment Area is Employment Area. From a white collar in which these key workers gravitate to. perspective, jobs growth of 2,880 is characterised by a diverse and large anticipated over the same period, 49% of range of businesses where as at June However, with the closure of the Manly which (or 1,417 jobs) are expected over 2014, there were 2,925 businesses Hospital and the downsizing of Mona the five year period to 2021. Notably, the trading within the Frenchs Forest - Vale Hospital, the Northern Beaches annual growth rate for white collar Belrose SA2 region (all industries). Of Hospital will become the primary hospital employment growth in the area is this total, 57% were within dominant for the Northern Beaches and expected to be double that of Greater white collar industries, the largest being surrounding areas. Sydney at 3.0% and 1.5% respectively professional, scientific and technical over the next 20 years. services (38%), financial and insurance Given the strong preference for medical services (19%) and rental, hiring and real professionals to be located close to Based on a conservative office density estate services (19%). hospital functions, it is likely that a ratio of 20m² per worker, office demand considerable share of existing medical in the area is anticipated to total From a growth perspective, the largest workers who occupy office space in 57,600m² over the next 20 years, increase in business numbers has been nearby areas will seek office space in highlighting the economic and derived from financial and insurance and around the new medical precinct. employment benefits associated with a services where over the two years to This is likely to see the Frenchs Forest new hospital. June 2014 an additional 22 businesses Employment Area become the logical became operational. At the same time, a choice for these professionals. In this While this office demand projection only further five health care and social environment, Frenchs Forest has the assistance businesses became accounts for the growth associated with potential to become the medical hub for operational over the same period. future employment gains (new jobs), it the region.

2 FRENCHS FOREST INSIGHT OCTOBER 2015 RESEARCH

Office Market further away from the CBD including the potential that some secondary stock will be likes of Epping and Norwest. With recent withdrawn for residential use. With a larger Fundamentals strong rental growth in core markets such resident population, additional demand for as North Sydney, Parramatta and office space is expected as smaller Office space in the Frenchs Forest Macquarie Park, ripple effects are likely, financial and professional service Employment Area is provided through a with rentals in the non-core suburban businesses seek to relocate closer to range of dedicated stand alone buildings markets such as Frenchs Forest, likely to where they live. and shared office formats in conjunction be pulled up over the short to medium with warehouse space. In total, Knight term. This is expected to be accentuated Sales and Frank’s stock count of A and B grade by infrastructure improvements and stock office space in the area totals withdrawals. Incentive levels for the area Investment Activity approximately 80,000m². currently average around 30%. Nationally, non-CBD office markets have With a modest improvement in tenant With office market conditions in the been subject to solid investor demand from both domestic and offshore capital as demand over the past four years Frenchs Forest Employment Area investors focus on assets with high relative stemming from existing operators in the projected to undergo a period of stronger yields and an upside to growth. The area either relocating to larger premises or tenant demand, the vacancy rate is expected increase in office demand taking additional space at their existing projected to decline from its current level resulting from medical professionals is address, the vacancy rate has improved of 13.9%. Markets such as Frenchs Forest likely to draw attention to the Frenchs from the heights recorded in 2010 and are likely to experience additional demand Forest market, with higher quality buildings 2011. Over the 10 months to October from tenant displacements in other expected to achieve average core market 2015, the vacancy rate in the Frenchs suburban markets stemming from the yields of around 8.00% - 9.25% depending Forest Employment Area has trended increase in office building conversions into on the profile of current leasing covenants upwards which is the result of non-core residential. and potential value add opportunities. office tenants ceasing operations. For example, a child care provider at 18 The lack of forthcoming supply in the There have been two office buildings sold Aquatic Drive Frenchs Forest recently Frenchs Forest Employment Area is also within Frenchs Forest over the past nine closed its doors after trading since 2008. likely to place further downward pressure months. The latest reported property sale The circa 850m² tenancy (1.1% of total on the vacancy rate as the only increase is in the area was the 3,435m² office building NLA) was a major factor behind the recent expected to come from additions to at 18 Rodborough Road which sold off increase. existing office buildings. This includes a market for a reported $9.6 million with a DA approved extension to level 5 at 20 passing yield of circa 10%. In December Frenchs Forest has a relatively affordable Rodborough Road where there is potential 2014 28 Rodborough Road (4,975m² office rental base when compared with other to add 1,160m² of NLA. With the potential NLA) transacted for $15 million, reflecting a non-core suburban markets throughout rezoning of certain sites surrounding the core market yield of 10.17%. The building Sydney, with an indicative net face rent of new Hospital, it is likely that future office was 100% occupied at time of sale; however, the property now has circa $263/m² and a range of $240—$285/m² development will be constrained in the 600m² of ground floor office space (see Figure 4). Of note, net face rents are area as developers choose the more available for lease. substantially below that of competing financially viable option of residential suburban markets which are located development. Simultaneously, there is Outlook

The outlook for the Frenchs Forest office Frenchs Forest Employment Area Avg Prime Net Face Rents market is favourable, with a projected Office Vacancy Rate By selected Sydney Suburban Markets, increase in tenant demand expected to October 2015 ($/m²) Dec 2010—Oct 2015 coincide with a period of weak supply and

$380 22% the possibility of stock withdrawals. In this $360 case, the current vacancy rate of 13.9% is 20% $340 expected to steadily decline as medical

18% and allied health professionals seek office $320 space in close proximity to the hospital. 16% $300 Frenchs Forest has the potential to

$280 replicate the likes of the Norwest where the 14% opening of the Norwest Private Hospital in $260 12% 2009 led to robust demand from $240 professionals associated with the hospital. 10% $220 With current office stock being well suited

8% to accommodate smaller suites for medical

Epping

Forest

Gordon

Frenchs Pymble/

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Oct-15 Norwest

Burwood Hurstville

Bankstown professionals, the vacancy and rental VACANCY RATE 5 YEAR AVERAGE NET FACE RENT RANGE ($/M²) INDICATIVE NET FACE RENT ($/M²) growth outlook looks brighter.

3

RESEARCH & CONSULTING Matt Whitby Group Director Head of Research & Consultancy +61 2 9036 6616 [email protected]

Paul Savitz Associate Director, Consulting +61 2 9036 6811 [email protected]

Luke Crawford Senior Analyst +61 2 9036 6629 [email protected]

COMMERCIAL RESEARCH Nick Hoskins Director - NSW +61 2 9036 6766 [email protected]

RESIDENTIAL RESEARCH Michelle Ciesielski Director, Residential +61 2 9036 6659 [email protected]

Knight Frank Research provides Abbreviations & Glossary: Core Market Yield: The percentage return/yield analysed when the assessed fully leased net strategic advice, consultancy services market income is divided by the adopted value/price which has been adjusted to account for and forecasting to a wide range of property specific issues (i.e. rental reversions, rental downtime for imminent expiries, capital clients worldwide including expenditure, current vacancies, incentives, etc.) developers, investors, funding Vacancy: Based on a selected basket of 14 A and B Grade commercial buildings amounting organisations, corporate institutions to 78,037m² of NLA. These are the largest buildings in Frenchs Forest all with NLA of over 862m². and the public sector. All our clients Frenchs Forest Employment Area (FFEA): This area is defined by the Bureau of Transport recognise the need for expert Statistics (BTS) Travel Zones of 2135, 2136, 2139, 2140, 2153, 2104, 2138. independent advice customised to their specific needs.

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