Demand for Chatswood commercial remains strong

Demand for Chatswood commercial remains strong

28 February 2020

According to recent research by Savills, underlying commercial property demand in Chatswood remains strong.

Commercially, Chatswood recorded -2,200 sqm of net absorption over 2Q19 on the back of small tenant (< 1,000 sqm) contractionary leasing activity. Headline vacancy rose 0.7 percentage points (pps) to 5.6% as a result.

Secondary vacancy also rose over 2Q19, reaching 8.2%, although it remains inside the 10-year average of 10.7%. Despite this uptick in vacancy over the quarter, underlying demand for office space in the market remains strong, with 12,100 sqm of net absorption recorded over the 12 months to 2Q19.

Chatswood’s proximity to retail amenity – Chatswood Westfield and Chatswood Chase – alongside the market’s strong accessibility offering, continues to support leasing take-up.

The Sydney Metro, with lines from Rouse Hill to Chatswood and Chatswood to the CBD, will continue to support demand for office space within the Chatswood office market moving forward.

According to David Hickey, Associate Director, Metropolitan & Regional Sales at Savills Australia, the supply pipeline is limited in Chatswood.

“There is only one project that currently holds development approval – Cromwell Property Group’s planned development at 485 Victoria Avenue. The development is expected to add 3,291 sqm of office stock to the Chatswood market, and is not projected to finish prior to 2021.

“Stock levels will stay relatively stable within the Chatswood office market as a result, and ongoing leasing activity over the short-to-medium term is expected to place further downward pressure on vacancy moving forward”.

According to Savills Australia research, secondary gross effective rents increased by 1.3% over 2Q19 to AUD 409 per sqm p.a., reflecting growth of 9.7% year-on-year.

This was primarily driven by a 0.6 pps fall in the secondary incentive to 23.5%, and was supported by secondary gross face rents growing by 0.6% over 2Q19 to AUD 534 per sqm p.a. (7.8% for the 12 months to 2Q19) on the back of below trend secondary vacancy.

The Chatswood office market is currently 28% cheaper when compared to North Sydney (secondary gross effective basis) and offers cost sensitive organisations a relatively cheaper alternative.

Mr Hickey said office assets in Chatswood have historically been tightly held, with only four assets being sold in the past 12 months – totaling AUD 776.9 million. The most recent transaction was Starwood Capital and Arrow Capital’s joint acquisition of The Zenith, 821-841 Pacific Highway, from Centuria and BlackRock for AUD 438.2 million in 2Q19.

“Despite being a prime asset, the acquisition of The Zenith highlights the value of retail amenity and public transport connectivity for investors assessing the Chatswood office market. Chatswood secondary yields, like those of the other North Shore office markets, have been in a downward trajectory since Q413. The secondary yield range in Chatswood currently sits at 5.50% – 6.00% and offers relative value in comparison to North Sydney’s secondary yield range at 5.25% – 5.50%.

Serviced by all forms of major transportation, Chatswood is at the centre of some of NSW’s major interchanges. The development of transport infrastructure is vastly improving access throughout metropolitan Sydney, with high quality amenity a priority in Chatswood, as a result of the unprecedented level of residential development.

To add to this, Nick Lower, Director, Metropolitan & Regional Sales at Savills Australia, said there is limited new commercial supply and when assets hit the market, they are snapped up rather quickly.

“Located in one of Sydney’s most popular inner city suburbs and home to major infrastructure, residential, retail and commercial projects, Chatswood also boasts one of the State highest suburban median house prices ($2,180,000). Situated on the cusp of the industrial precinct within Chatswood, the area has undergone significant gentrification over recent years and has seen major tenants call home” he said.