Sydney Office Market Research Report

Sydney Office Market Research Reprt Prepared fr NSW Department f Planning and Envirnment June 2014 Final

THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK Nte: Minr edits made n the 10 th February 2016

Cntents 1 Executive Summary... 1 2 Intrductin... 2 2.1 Scpe f Wrks... 2 3 Sydney Majr Office Market Analysis... 3 3.1 Intrductin... 3 3.2 Sydney CBD Precinct... 4 3.3 Nrth Sydney Cmmercial Office Precinct... 7 3.4 St Lenards Cmmercial Office Precinct... 8 3.5 Chatswd Cmmercial Office Precinct... 9 3.6 Nrth Ryde Cmmercial Office Precinct... 10 3.7 Parramatta Cmmercial Office Precinct... 12 3.8 Sydney Olympic Park Cmmercial Office Precinct... 13 3.9 Rhdes Cmmercial Office Precinct... 15 3.10 Nrwest Cmmercial Office Precinct... 16 3.11 Suth Sydney Cmmercial Office Precinct... 17 3.12 Other Emerging Markets... 18 3.13 Summary... 18 4 Drivers f Demand... 21 4.1 Sydney CBD... 21 4.2 Metrplitan Office Markets Overview... 22 4.3 Summary and Cnclusins... 25 5 Sydney CBD Cmmercial Office Capacity... 26 5.1 Develpment Pipeline... 26 5.2 Years f Supply Assessment... 31 5.3 Secndary Stck and Ptential Redevelpment Sites... 32 5.4 Implicatins... 34 Figures Figure 3.1 Majr Sydney Metrplitan Cmmercial Office Precincts 4 Figure 3.2 Sydney CBD Cmmercial Office Precinct 6 Figure 3.3 Nrth Sydney Cmmercial Office Precinct 8 Figure 3.4 St Lenards Cmmercial Office Precinct 9 Figure 3.5 Chatswd Cmmercial Office Precinct 10 Figure 3.6 Nrth Ryde Cmmercial Office Precinct 11 Figure 3.7 Parramatta Cmmercial Office Precinct 13 Figure 3.8 Sydney Olympic Park Cmmercial Office Precinct 14 Figure 3.9 Rhdes Cmmercial Office Precinct 15 Figure 3.10 Nrwest Cmmercial Office Precinct 16 Figure 3.11 Suth Sydney Cmmercial Office Precinct 17 Figure 3.12 Cmmercial Flrspace in Sydney s Majr Office Markets 19 Figure 3.13 Prprtinal Vacant Flrspace in Majr Office Markets 20 Figure 3.14 Average A-Grade Rents in Sydney s Majr Office Markets 20 Figure 5.1 Cmmercial Office Supply Pipeline Sydney CBD 28

Tables Table 3.1 Sydney CBD Office Precinct Key Indicatrs... 4 Table 3.2 Nrth Sydney Office Precinct Key Indicatrs... 7 Table 3.3 St Lenards Office Precinct Key Indicatrs... 8 Table 3.4 Chatswd Office Precinct Key Indicatrs... 9 Table 3.5 Nrth Ryde Office Precinct Key Indicatrs... 11 Table 3.6 Parramatta Office Precinct Key Indicatrs... 12 Table 3.7 Sydney Olympic Park Office Precinct Key Indicatrs... 14 Table 3.8 Rhdes Office Precinct Key Indicatrs... 15 Table 3.9 Nrwest Office Precinct Key Indicatrs... 16 Table 3.10 Suth Sydney Office Precinct Key Indicatrs... 17 Table 4.1 Market Drivers... 26 Table 5.1 Cmmercial Office Supply Pipeline Sydney CBD... 27 Table 5.2 Cmmercial Office Supply Pipeline Nrth Sydney Precinct... 28 Table 5.3 Sydney CBD Cmmercial t Residential Cnversin Apprvals... 29 Table 5.4 Sydney CBD Site Sales Ptentially Suitable fr Residential... 30 Table 5.5 Sydney CBD Cmmercial Office Years f Supply Assessment... 31

1 EXECUTIVE SUMMARY Clliers Internatinal ( Clliers ) was engaged by NSW Department f Planning and Envirnment t prvide a market analysis f the ten largest (by flrspace) cmmercial ffice precincts in Sydney, cmprising: Sydney CBD; Nrth Sydney; St Lenards; Chatswd; Nrth Ryde; Parramatta; Sydney Olympic Park; Rhdes; Nrwest; Suth Sydney. Each market has unique characteristics, particularities and drivers. Sydney CBD The Sydney CBD is cmpsed f a number f submarkets, with the City Cre in the nrthern CBD and t a lesser extent the Western Crridr cmprising the prime markets. These markets accmmdate the highest rents, the highest prfile private tenancies, the greatest cmmercial flrspace and the largest cmmercial develpment pipeline. They are the fcus fr the financial and legal sectrs. The Midtwn market is subject t strng pressure fr residential develpment and the future destiny f this area is likely t be as a mixed use residential and entertainment fcused precinct. The Suthern CBD is dminated by gvernment tenants and back f huse peratins. It has lw tenant turnver but the impact f the State gvernment decentralisatin plicy n the Suthern CBD is unclear. Clliers has identified a number f challenges facing the Sydney CBD s cmmercial market in the lng term: 1) Residential highest and best use Strng demand fr residential units in Sydney CBD has increased demand fr residential develpment sites and cnversin pprtunities ver the last year adversely affecting the cmmercial prperty market. This situatin is expected t cntinue in the shrt t medium term. Given the lack f residential dwellings in the CBD cmpared t ther capital cities in Australia, we believe there is sme way t g befre demand fr residential sites in Sydney begins t mderate; 2) Lack f develpment sites In the lng term Central Statin culd ptentially accmmdate a sizable amunt f future cmmercial ffice but withut this site there are n ther bvius ptins fr the CBD t meet prjected lng-term demand. Lack f large scale supply ptins wuld cnstrain the ecnmic develpment and cmpetitiveness f Sydney CBD; 3) Pedestrian and public transprt accessibility Accessibility n ft and by public transprt within the Sydney CBD is variable. Gerge Street is cngested and walking between different parts f the CBD, 1

frm the City Cre t Darling Harbur, fr example, are lengthy distances and subject t pr amenity. A number f gvernment actins t mitigate these risks are suggested by Clliers. Metrplitan Markets The lwer nrth shre markets (St Lenards, Chatswd and Nrth Sydney) are traditinal metrplitan precincts and, after Sydney CBD, attain the highest rents. Hwever there is limited ptential fr these precincts t expand further due t a lack f sites and strng pressure fr residential develpment. Their cntributin twards accmmdating significant future cmmercial ffice demand is likely t be limited. Rhdes and Sydney Olympic Park represent newer markets prviding A-grade flrspace. Demand is strng fr representatin in these lcatins as evidenced by their lw vacancy rates, hwever their future expansin ptential is limited. Rhdes has been entirely develped whilst Sydney Olympic Park is mving twards a brader mixed use as envisaged in the Sydney Olympic Park Master Plan. The cmmercial precincts in Nrth Ryde (Macquarie Park), Nrwest and Parramatta are perfrming well with slid demand frm tenants. These precincts are expected t expand t absrb sme future cmmercial demand. Parramatta is facing a significant shrtage in premium grade flrspace at the current time. New cmmercial develpments are in the pipeline but btaining enugh pre-cmmitments t ensure financing is a challenge in the current market. Suth Sydney is a small cmmercial precinct with significant scpe t intensify uses. This area is accmmdating a significant amunt f residential develpment and as a result, the lnger term ptential f Suth Sydney as a cmmercial ffice market is uncertain. 2 INTRODUCTION Clliers Internatinal ( Clliers ) was engaged by NSW Department f Planning and Envirnment t prvide a market analysis f the ten largest (by flrspace) cmmercial ffice precincts in Sydney. The findings f this analysis are set ut in this reprt. 2.1 Scpe f Wrks The scpe f wrks fr the reprt was: Task 1: Sydney Majr Office Market Analysis Outline f majr ffice precincts in Sydney, including gegraphic bundaries, f the fllwing precincts: Sydney CBD Nrth Sydney St Lenards Chatswd Nrth Ryde 2

Parramatta Sydney Olympic Park Rhdes Nrwest Suth Sydney Ttal ffice flrspace fr each precinct; and Estimated average A-Grade rental levels fr each precinct, as well as vacancy rates. Task 2: Drivers f Demand Outline the main drivers f demand in the majr ffice precincts in Sydney. Task 3: Sydney CBD Capacity Prvide an estimate f the likely capacity f the Sydney CBD (including Nrth Sydney) including: Details f the develpment pipeline including all ffice prjects under cnstructin, with planning apprval and mted An utline f the any lnger term develpment sites An analysis f secndary ffice stck and the ptential redevelpment sites An estimate f the years f supply available within the Sydney CBD Prvide advice, in light f the abve, as t whether there any barriers (risks) t Sydney maintaining / enhancing its rle as a glbally cmpetitive city, and if s what actins shuld gvernment be cnsidering. Each f these tasks is addressed in each f the fllwing three Chapters. 3 SYDNEY MAJOR OFFICE MARKET ANALYSIS 3.1 Intrductin The lcatin f the ten majr cmmercial ffice precincts in Sydney is shwn in Figure 3.1. Each precinct is explred in detail fr the remainder f this Chapter. 3

Figure 3.1 Majr Sydney Metrplitan Cmmercial Office Precincts Surce: Clliers Internatinal/ MapInf (2014) 3.2 Sydney CBD Precinct Key indicatrs fr the Sydney CBD Precinct are prvided in the fllwing table. Table 3.1 Sydney CBD Office Precinct Key Indicatrs Sydney CBD functins as a number f submarkets as fllws: City Cre Descriptin The City Cre is situated in the nrth CBD and is the largest submarket in Australia. It is the prime cmmercial market, attaining the greatest rents and representatin frm high prfile private sectr tenants. It has strng representatin in the financial and legal sectr as well as gvernment tenants and a diverse array f industry types. It extends nrth t suth frm Circular Quay t King Street and east t west frm Macquarie Street t Yrk Street. Midtwn Midtwn cmprises the apprximate area extending frm King Street in the nrth, Gulburn Street in the suth, west f Elizabeth Street and east f Yrk Street/ Kent Street. The characteristics f this area are mixed. The area cntains a strng retail and entertainment ffer in additin t residential uses. Cmmercial ffice flrspace in this market caters fr fringe tenants wh desire a central lcatin but d nt need t be in the City Cre. Tenants seek t benefit frm 4

the lwer rents in this area. In the current leasing market with relatively high incentives, Midtwn has benefited frm tenants in metrplitan markets like St Lenards, Chatswd and Nrth Sydney relcating int the CBD, due t cmparable rents but a greater variety f quality premises and public transprt accessibility. Suthern The Suthern CBD is fcused arund Central Statin and has strng representatin frm gvernment tenants and private back f huse peratins. It has lw tenant turnver. This reflects affrdable rental levels and excellent public transprt accessibility. This area extends suth frm Liverpl Street/ Gulburn Street. It cntains n premium grade flrspace. The Suthern and Midtwn precincts incrprate the CBD s Chinatwn between Gerge Street and Harbur Street. This area cmprises predminantly small, Asian wned land plts and is highly fragmented. Many f the wners see these sites as lng-term r family investments s there is limited market activity and sales that are cnducted are frequently ff market. Retail tenancies in Chinatwn attain high rental levels, reducing the need fr site wners t redevelp in rder t achieve slid returns. Western Crridr Descriptin The Western Crridr cmprises the area t the west f Yrk Street and includes Darling Harbur. It ffers quality Premium, A-grade and secndary flrspace with smaller flr plates and a lwer price-pint cmparative t the City Cre. Financial and cnsulting services are well represented in this market. This area is underging transitin with tw majr redevelpment prjects underway: Barangar and Darling Harbur Live. Barangar in particular will shift the fcus fr accunting and banking services west f the existing prime area. Tenants whse majr clients are either in Barangar r the Nrthern CBD are likely t be attracted t the Western Crridr. Barangar is expected t cmplement the Western Crridr by virtue f increased amenity and may assist t drive rental grwth fr nearby buildings. The Rcks/ Walsh Bay The Rcks/ Walsh Bay area is a heritage precinct prviding unique cmmercial ffice assets in a high quality physical envirnment. This frmer cmmercial shipping prt has been extensively redevelped t ffer a mixture f uses cmbining cmmercial ffice, residential, retail and cultural facilities. The cmmercial ffice market is small but with sme high prfile tenancies. It attracts cultural, media and architectural tenancies. The gegraphical bundary f Sydney CBD and the submarkets it cntains is shwn in Figure 3.2 verleaf. 5

Figure 3.2 Sydney CBD Cmmercial Office Precinct Gegraphic Bundaries Ttal Flrspace* Vacancy Rate* Surce: Prperty Cuncil f Australia Prperty Office Market Reprt (January 2014) 4,958,706sqm (January 2014) cmprising: City Cre 2,109,537sqm Midtwn 1,192,270sqm Suthern 339,825sqm The Rcks 42,501sqm Walsh Bay 58,902sqm Western 1,215,671sqm 9.0% (January 2014) cmprising: City Cre 11.6% Midtwn 8.5% Suthern 3.3% The Rcks 15.2% Walsh Bay 0.6% Western 6.7% 6

Average A- Grade Net Face Rents^ Majr Tenants $810/sqm fr Premium and $610/sqm fr A-Grade (Q1 2014) althugh these vary significantly acrss the CBD City Cre AMP ANZ Australian Stck Exchange Charter Hall Claytn Utz Delitte DLA Piper Henry Davis Yrk HSBC Macquarie Bank Mirvac NAB QIC Reserve Bank f Australia Midtwn Australian Taxatin Office City f Sydney Cuncil Ernst Yung Surce: ^ Clliers Internatinal (2014) * Prperty Cuncil f Australia Office Market Reprt (January 2014) 3.3 Nrth Sydney Cmmercial Office Precinct Key indicatrs fr the Nrth Sydney Precinct are prvided in the fllwing table. Table 3.2 Nrth Sydney Office Precinct Key Indicatrs Suthern Cmmnwealth Ombudsman Department f Health and Ageing Department f Immigratin and Citizenship Department f Veteran Affairs RTA Transprt fr NSW University f Technlgy Sydney WrkCver NSW The Rcks/ Walsh Bay Hassell Murdch Media Sydney Harbur Freshre Authrity Yah!7 Western Crridr Clnial First State Cmmnwealth Bank f Australia HSBC KPMG PwC Descriptin Nrth Sydney is fcused n the Pacific Highway and Miller Street sme 3km nrth f Sydney CBD. The Nrth Sydney Precinct is histrically the metrplitan sales htspt f natinal metrplitan markets in terms f market activity and values. Cmmercial ffice stck prvided is predminantly ld frmat with a shrtage f gd quality space. Lack f new cmmercial ffice supply tgether with strng demand fr residential uses which has witnessed the retrfitting f cmmercial ffice flrspace fr residential uses, presents challenges fr this market in the future. The last six mnths has seen negative stck absrptin and the lss f tenants t Sydney CBD, given a lack f quality cmmercial stck and tight supply driving up rents. 7

Figure 3.3 Nrth Sydney Cmmercial Office Precinct Gegraphic Bundaries Ttal Flrspace* Vacancy Rate* Average A- Grade Net Face Rents^ Majr Tenants Surce: Clliers Internatinal/ MapInf (2014) 848,605sqm (January 2014) 9.0% (January 2014) $565/sqm (Q1 2014) MLC Limited Rads and Traffic Authrity NSW Health Vdafne Natinal Australia Bank Surce: ^ Clliers Internatinal (2014) * Prperty Cuncil f Australia Prperty Market Reprt (January 2014) NBN United Grup Pty Ltd / UGL Zurich Financial Services First Data Resurces Cisc Systems 3.4 St Lenards Cmmercial Office Precinct Key indicatrs fr the St Lenards Precinct are prvided in the fllwing table. Table 3.3 St Lenards Office Precinct Key Indicatrs This precinct is fcused n the Pacific Highway and St Lenards rail statin. It abuts the Nrth Sydney precinct t the suth and is situated apprximately 5km frm Sydney CBD. Cmmercial tenancies have a fcus n technlgical and bradcasting uses and cmprise traditinal, lder style CBD cmmercial flrspace. There is strng demand fr residential uses in this precinct given the high level f accessibility and presence f lcal Descriptin services. Site reznings frm cmmercial t residential uses is erding the cmmercial market in this precinct and there is a limited cmmercial pipeline. In ur view the future directin f this precinct will be twards residential and medical uses, reflecting the redevelpment f the Nrth Shre hspital, and away frm cmmercial ffice uses. 8

Figure 3.4 St Lenards Cmmercial Office Precinct Gegraphic Bundaries Ttal Flrspace* Vacancy Rate* Average A- Grade Net Face Rents^ Majr Tenants Surce: Clliers Internatinal/ MapInf (2014) 357,333sqm (January 2014) 13.9% (January 2014) $455/sqm (Q1 2014) Tyta Financial Services IBM Lenv Oprt Manchester Unity NSW Department f Educatin and Training Surce: ^ Clliers Internatinal (2014) * Prperty Cuncil f Australia Prperty Market Reprt (January 2014) Savvytel Leightn Hldings Macquarie Media Grup Channel 31 TV Studi Fx Studi Cardn 3.5 Chatswd Cmmercial Office Precinct Key indicatrs fr the Chatswd Precinct are prvided in the fllwing table. Table 3.4 Chatswd Office Precinct Key Indicatrs Chatswd CBD is fcused n land between the railway line and the Pacific Highway. In additinal t cmmercial ffice uses Chatswd CBD is a majr retail centre cntaining tw sizable shpping centres (Chatswd Chase and Westfield Chatswd), an administrative hub, a transprt nde incrprating Descriptin Chatswd rail statin and Transprt Interchange and ffers high-density residential uses. As a result f these attributes there is strng pressure fr residential develpment impacting n the cmmercial ffice market. 9

The Chatswd precinct is transitining away frm cmmercial fcus twards a mre mixed use market. This is being facilitated thrugh land reznings reducing the amunt f land available fr cmmercial uses in favur f residential uses, fr example the current Leightn s building (wh will be relcated t new premises in Nrth Sydney). Figure 3.5 Chatswd Cmmercial Office Precinct Gegraphic Bundaries Surce: Prperty Cuncil f Australia Office Market Reprt (January 2014) Ttal Flrspace* 280,845sqm (January 2014) Vacancy Rate* 12.3% (January 2014) Average A-Grade Net Face Rents^ Majr Tenants $455/sqm (Q1 2014) CSR Limited Smith's Snackfd Abigrup Cffey Pepsic Carter Hlt Harvey Surce: ^ Clliers Internatinal (2014) * Prperty Cuncil f Australia Office Market Reprt (January 2014) 3.6 Nrth Ryde Cmmercial Office Precinct Nrtel Netwrks Optus Lenv NEC Leightn Hldings Cisc Systems Key indicatrs fr the Nrth Ryde Precinct are prvided in the fllwing table. 10

Table 3.5 Nrth Ryde Office Precinct Key Indicatrs The Nrth Ryde Precinct encmpasses Macquarie Park. It is the largest metrplitan ffice market in Australia and cntinues t develp, supprted by nging infrastructure investment. It incrprates the headquarters f a number f internatinal cmpanies and has a fcus n hi-tech industrial uses. Descriptin Macquarie Park ffers lw rise cmmercial flrspace in a landscaped area. It was riginally attractive t US cmpanies in the 1970s and 1980s seeking business park style accmmdatin at lw ccupancy csts. Demand has been strngest frm tenants in the IT, pharmaceutical, manufacturing and distributin and fd sectrs. Generatin 1 tenants have tended t upgrade their cmmercial premises but stay lcally at lease renewal stage r t expand, reflecting the lng term attractin f this market. Flrplates are typically 2,000-2,500sqm. With pressure fr residential develpment in this market in the cntext f infrastructure imprvements, the lng term capacity f this precinct is uncertain. A number f cmmercial sites have been, r are prpsed t be, rezned r redevelped t accmmdate nn-cmmercial uses including dwellings, data centres and bulky gds uses. Figure 3.6 Nrth Ryde Cmmercial Office Precinct Gegraphic Bundaries Ttal Flrspace* Surce: Clliers Internatinal/ MapInf (2014) 854,251sqm (January 2014) Vacancy Rate* 7.5% (January 2014) Average A- Grade Net Face Rents^ Majr Tenants $340/sqm (Q1 2014) AstraZeneca BOC Cann CSC Micrsft Nvartis Optus Oracle Crpratin 11

Ericssn Fxtel Fuji Xerx Fujitsu Hyundai Jhnsn & Jhnsn Knica Minlta Surce: ^ Clliers Internatinal (2014) * Prperty Cuncil f Australia Office Market Reprt (January 2014) 3.7 Parramatta Cmmercial Office Precinct Panasnic Philips Prcter and Gamble Schneider Electric Siemens Sny Tshiba Key indicatrs fr the Parramatta Precinct are prvided in the fllwing table. Table 3.6 Parramatta Office Precinct Key Indicatrs Parramatta services Sydney s western areas and is dubbed Sydney s secnd CBD. It is situated 23km west f Sydney CBD. Cmmercial ffice uses in the precinct have a fcus n infrmatin and finance based services, as well as the gvernment sectr, and cmprise a traditinal CBD style ffer. It has benefited frm the gvernment decentralisatin plicy. Descriptin Parramatta is a Majr Reginal Centre and in additin t cmmercial uses it cntains a sizeable retail ffer anchred by Westfield Parramatta, residential uses, administrative and civic uses including a number f curts in the Parramatta Justice Precinct and transprtatin functins including the Parramatta rail statin and bus interchange. There is strng pressure fr residential develpment in the precinct and a lack f new premium cmmercial supply, althugh a number f cmmercial develpments are in the pipeline. The challenge fr Parramatta CBD is that despite strng demand fr premium flrspace and lw vacancy levels, as much f this demand is frm gvernment tenants they are reluctant t pre-cmmit t flrspace. As a result securing finance fr cmmercial develpment is prblematic as financial institutins are averse t funding speculative develpment. Like ther metrplitan markets Parramatta has experienced strng pressure fr residential develpment. Parramatta City Cuncil has applied a land zning in the CBD which prhibits residential uses in rder t preserve the future ptential f this area t accmmdate cmmercial ffice develpments. 12

Figure 3.7 Parramatta Cmmercial Office Precinct Gegraphic Bundaries Ttal Flrspace* Vacancy Rate* Average A- Grade Net Face Rents^ Majr Tenants Surce: Clliers Internatinal/ MapInf (2014) 685,878sqm (January 2014) 5.9% (January 2014) $403/sqm (Q1 2014) Australian Taxatin Office Clman and Greig Delitte NSW Department f Attrney General and Justice NSW Plice QBE Surce: ^ Clliers Internatinal (2014) * Prperty Cuncil f Australia Office Market Reprt (January 2014) Parramatta City Cuncil PwC Servcrp Suncrp Bank Sydney Water UrbanGrwth NSW 3.8 Sydney Olympic Park Cmmercial Office Precinct Key indicatrs fr the Sydney Olympic Park Precinct are prvided in the fllwing table. 13

Table 3.7 Sydney Olympic Park Office Precinct Key Indicatrs Sydney Olympic Park is situated 15km west f Sydney adjacent t Parramatta Rad. The cmmercial cmpnent f the precinct is mdest in size but is grwing with a number f schemes in the pipeline. It incrprates Olympic Park rail statin and assciated sprting and entertainment facilities. It cntains strng representatin in knwledge-based service tenants, including financial, prfessinal and technical services. It is managed by State Gvernment via the Sydney Olympic Park Authrity, differentiating it frm ther precincts. Descriptin Sydney Olympic Park serves demand frm tw key areas: 1. Demand frm Sydney CBD tenants wh wish t lcate nn-cre functins t alternative markets that are cheaper but still easily accessible frm the Sydney CBD. An example f this is Cmmnwealth Bank f Australia (CBA) mving administrative functins frm the CBD t Sydney Olympic Park and in ding s halving their rents per sqm; 2. Manufacturing tenants wh have traditinally perated frm the Inner West, wh have mved their manufacturing peratins further west but wish t retain their cmmercial ffice presence lcally. Sydney Olympic Park is a well perfrming precinct with strng demand, high quality flrspace and a lack f supply. This precinct is transitining twards a mre mixed use and residential fcus and the lng term ptential fr additinal cmmercial flrspace develpment is cnstrained. Figure 3.8 Sydney Olympic Park Cmmercial Office Precinct Gegraphic Bundaries Surce: Clliers Internatinal/ MapInf (2014) Ttal Flrspace 123,475sqm (Q1 2013) Vacancy Rate 1.3% (Q1 2014) Average A-Grade Net Face Rents $373/sqm (Q1 2014) Majr Tenants Surce: Clliers Internatinal (2014) Cmmnwealth Bank f Australia Fujitsu Lin Nathan NSW Institute f Sprt QBE RailCrp Samsung Australia Sprts & Recreatin NSW Sydney Water Thales 14

3.9 Rhdes Cmmercial Office Precinct Key indicatrs fr the Rhdes Precinct are prvided in the fllwing table. Table 3.8 Rhdes Office Precinct Key Indicatrs The Rhdes Peninsular is lcated in the City f Canada Bay LGA apprximately 18km frm Sydney CBD. Cmmercial ffice uses are cncentrated in Rhdes Crprate Park n the eastern side f Cncrd Rad/ Hmebush Bay Drive (the A3). Retail facilities are Descriptin prvided in the Mirvac wned Rhdes Shpping Centre. The land t the west f the railway line is being develped fr high density residential uses. This is a well perfrming market and prvides nly A-grade flrspace cmmercial develpment sites which have all been built ut s the scpe fr additinal supply is limited. Figure 3.9 Rhdes Cmmercial Office Precinct Gegraphic Bundaries Ttal Flrspace* Vacancy Rate* Average A- Grade Net Face Rents^ Majr Tenants Surce: Clliers Internatinal/ MapInf (2014) 143,927sqm (January 2013) 5.2% (January 2014) $380/sqm (Q1 2014) AAPT Alcatel-Lucent Allied Mills Australand Citibank Derivan Guthy-Renker Surce: ^ Clliers Internatinal (2014) * Prperty Cuncil f Australia Office Market Reprt (January 2014) Hewlett-Packard Australia Hilti (Aust) Natinal Australia Bank Nestle SITA Envirnmental Sykes Australia United Financial Services 15

3.10 Nrwest Cmmercial Office Precinct Key indicatrs fr the Nrwest Precinct are prvided in the fllwing table. Table 3.9 Nrwest Office Precinct Key Indicatrs The Nrwest Office Precinct is situated in Baulkham Hills LGA in Sydney s Nrth West. The Nrwest Business Park is a purpse built precinct which was first cmpleted in 1992 and has develped in a number f subsequent stages. Frm early 2000 the precinct succeeded in attracting high prfile tenancies. Lcal infrastructure prvided in the vicinity f the precinct includes the Circa Retail Shpping Centre, Nrwest Marketwn, Nrwest Private Hspital and the Bella Vista Waters executive Descriptin husing estate. Nrwest ffers mdern, business park style cmmercial ffice flrspace in landscaped surrundings. This market is deemed t have significant ptential fr expansin in the future as a result f planned infrastructure in the vicinity, including residential expansin and the Nrth West Rail Link, as well as the availability f land and scpe fr greater intensity f existing uses. Figure 3.10 Nrwest Cmmercial Office Precinct Gegraphic Bundaries Surce: Clliers Internatinal/ MapInf (2014) Ttal Flrspace 270,034sqm (Q1 2013) Vacancy Rate 10.4% (Q1 2014) Average A-Grade Net Face Rents Majr Tenants $330/sqm (Q1 2014) Surce: Clliers Internatinal (2014) AAMI Atlas Nrwest Australia Pst Cathy Pacific Hills Shire Cuncil Hillsng Church Schneider Electric Reserve Bank f Australia Res Med Wlwrths Wyeth Australia 16

3.11 Suth Sydney Cmmercial Office Precinct Key indicatrs fr the Suth Sydney Precinct are prvided in the fllwing table. Table 3.10 Suth Sydney Office Precinct Key Indicatrs Suth Sydney is situated 7km suth f Sydney CBD and adjacent t Sydney Kingsfrd-Smith Airprt. Prevailing land uses in the precinct cmprise a significant cmpnent f light industrial, transprtatin and warehusing. Much f the cmmercial flrspace prvided is within r adjining such tenancies. Descriptin There is a significant quantum f develpment ptential in the Suth Sydney precinct given its predminantly lw intensity industrial use despite excellent accessibility and prximity t the Sydney CBD and the airprt. The area is transitining t a wider mix f uses with a fcus n residential develpment, particularly arund transprt ndes such as Green Square rail statin (which will becme a Majr Centre) and Masct rail statin. This transitin creates bth pprtunities and threats fr the cmmercial ffice market. Figure 3.11 Suth Sydney Cmmercial Office Precinct Gegraphic Bundaries Surce: Clliers Internatinal/ MapInf (2014) Ttal Flrspace 448,817sqm (Q1 2013) Vacancy Rate 8.9% (Q1 2014) Average A-Grade Net Face Rents Majr Tenants $400/sqm (Q1 2014) Clliers DHL Qantas Surce: Clliers Internatinal (2014) 17

3.12 Other Emerging Markets Other cmmercial ffice markets nt cvered abve but which shuld be acknwledged cmprise: Pyrmnt/ Ultim This is an established cmmercial market situated west f Darling Harbur. It caters fr smaller ffice tenancies and benefits frm gd quality lcal amenity and services, accessibility t the CBD and the Inner West and the presence f heritage assets. It is a small market but tightly held with very lw A-grade vacancy. There is scpe fr cmmercial ffice uses t expand in this market in the future due t the presence f sme larger sites and the ptential fr amalgamatin. Key tenants are fcused n the media and marketing sectrs and include: Accenture; American Express Australia; BMF Advertising Fairfax Media; Ggle; Md Media; Netwrk Ten; Nva FM; Palladium Management; Sandx; Stellar Market Research; Thmsn Reuters; and Vdafne. Australian Technlgy Park The ATP in Eveleigh is an emerging precinct fcused n hi-tech startup cmpanies, particularly in bitechnlgy. It is situated adjacent t Redfern rail statin ffering easy accessibility t Sydney CBD and the Inner West. The area has significant develpment capacity within the 14 hectares f land designated fr cmmercial uses. Key tenants include: Cnsult Pint Fuji Xerx; Glbal Televisin; LX Grup; Rads and Maritime Services; Seven Netwrk (prductin studis); University f Sydney Faculty f Agriculture and Envirnment. 3.13 Summary This Chapter has examined the largest cmmercial ffice precincts in Sydney and detailed key characteristics fr each. Ttal cmmercial flrspace in each f the majr precincts is depicted in Figure 3.12. 18

Sydney CBD Nrth Sydney St Lenards Chatswd Nrth Ryde Parramatta Sydney Olympic Park Rhdes Nrwest Suth Sydney Cmmercial Flrspace (sqm) Figure 3.12 Cmmercial Flrspace in Sydney s Majr Office Markets 5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Surce: Clliers Internatinal/ Prperty Cuncil f Australia Sydney CBD dwarfs all ther ffice markets in Sydney with 4.96m sqm f flrspace, mre than all majr metrplitan ffice markets cmbined. The largest metrplitan cmmercial ffice markets in terms f ttal quantum f flrspace prvided are Nrth Ryde (854,000sqm) and Nrth Sydney (849,000sqm), fllwed by Parramatta (686,000sqm). The prprtin f vacant flrspace in each f the majr precincts is shwn in Figure 3.13. Cmparing the precincts the greatest vacancy rate was recrded in St Lenards (13.9%), Chatswd (10.4%) and Nrwest (10.4%). Sydney Olympic Park and Rhdes recrded the lwest prprtinal vacancy (at 1.3% and 5.2% respectively) but were als the smallest f the ffice precincts in terms f cmmercial flrspace prvided. These precincts ffer premium assets which are in relatively shrt supply in metrplitan markets, althugh the scpe fr further cmmercial develpment in these tw markets may be limited. 19

Sydney CBD Nrth Sydney St Lenards Chatswd Nrth Ryde Parramatta Sydney Olympic Park Rhdes Nrwest Suth Sydney A-Grade Net Rents ($/sqm) Sydney CBD Nrth Sydney St Lenards Chatswd Nrth Ryde Parramatta Sydney Olympic Park Rhdes Nrwest Suth Sydney Vacant Flrspace Figure 3.13 Prprtinal Vacant Flrspace in Majr Office Markets 16% 14% 12% 10% 8% 6% 4% 2% 0% Surce: Clliers Internatinal/ Prperty Cuncil f Australia Figure 3.14 cmpares the average A-Grade rents in the majr cmmercial ffice markets in Sydney. Figure 3.14 Average A-Grade Rents in Sydney s Majr Office Markets $700 $600 $500 $400 $300 $200 $100 $0 Surce: Clliers Internatinal 20

Of the metrplitan ffice precincts under cnsideratin (i.e. excluding Sydney CBD) Nrth Sydney attained the highest A-Grade rents at $565/sqm well abve the secnd greatest net rents recrded in St Lenards and Chatswd ($455/sqm). A-grade rents in the ther six metrplitan precincts varied between $330/sqm (Nrwest) t $403/sqm (Parramatta). By cmparisn, average net rents recrded in Sydney CBD in Quarter 1 2014 were $810/sqm fr Premium Grade and $610/sqm fr A-Grade flrspace. 4 DRIVERS OF DEMAND 4.1 Sydney CBD The key drivers f demand in each f the Sydney CBD submarkets are: City Cre Midtwn Suthern Traditinal CBD cmmercial ffer; Excellent accessibility; Range f Premium and A-Grade flrspace; Range f flrplates n ffer; High rental levels cmparative t ther parts f the CBD; Fcus fr the financial and legal sectrs; Pedestrianisatin f Gerge Street and the new light rail will increase accessibility; Internatinal reputatin; Sme cmpetitin with Barangar but new high prfile tenants have cmmitted t Martin Place (e.g. Clnial First State, LinkedIn and Ashurst) reflecting the lng term viability f this precinct; Pipeline supply ptential arund Circular Quay Sme pressure fr residential develpment arund the City Cre fringes. Affrdable rental price-pint and range f gd quality stck available; Has attracted sme tenants frmerly lcated in metrplitan markets; Lack f pipeline supply; Mixed use nature f the area; Pressure fr residential develpment leading t cmmercial stck withdrawals; FSR cntrls, mixed uses and accessibility supprt transitining t residential uses; Fragmented land wnership and limited develpment ptential arund Chinatwn; The future fr this area is likely t be mixed use with a fcus n residential, retail and entertainment, rather than cmmercial ffice. Strng presence f gvernment tenants and private back f huse facilities; Excellent accessibility and prximity t Central Statin; Affrdable rental price-pint; Pressure fr residential develpment; Sme larger sites with ptential fr future cmmercial develpment; 21

Gvernment decentralisatin may remve lng term tenants frm this market; Fragmented land wnership and limited develpment ptential arund Chinatwn. Western Crridr Sizable cmmercial ffice presence; Financial and cnsulting sectr fcus; Availability f large flrplate cmmercial uses; Mre affrdable rental price-pint cmparative t the City Cre; Highly accessible area n ft and by public transprt; High prfile supply additins at Barangar and Darling Harbur Live; Planned accessibility imprvements including Wynyard Walk; Limited flrspace prvisin fr small ffice tenancies f under 1,000sqm. The Rcks/ Walsh Bay Media and creative industry presence; High envirnmental quality given heritage value and prximity t water; Dminated by smaller ffice flrplates; Lack f future cmmercial develpment pprtunities; Strng demand fr residential uses; Planned sale f public husing stck in the area t the market may change cmmercial character. 4.2 Metrplitan Office Markets Overview Sydney has traditinally had a strng metrplitan ffice market and this strength cntinues. It has benefited frm State Gvernment decentralisatin which is being pursued t reduced csts. This reflects high rents in the Sydney CBD and the relative affrdability f metrplitan markets in cmparisn. Demand fr large cntiguus space in Sydney metrplitan markets has and will cntinue t prevail. Large reznings in several suburban ffice markets are expected t see significant areas f cmmercial and industrial land becming mixed use, facilitating redevelpment t accmmdate residential uses at the expense f cmmercial uses. This is expected t increase demand fr lder secndary grade assets frm develpers seeking t cnvert premises t residential uses. This is anticipated t lead t sme cntractin f inner metr ffice markets ging frward, althugh sme markets further ut frm the CBD that have cmmercial expansin ptential will grw as a result. An emerging trend witnessed by Clliers is fr ffice tenants with a CBD presence t retain their headquarters in the CBD but mve administrative and supprt staff functins t metrplitan markets where rents are mre affrdable. This is evidenced recently by the relcatin by CBA and IAG f utlying functins t Sydney Olympic Park, halving the rents payable fr equivalent assets in the CBD. Nrth Sydney, Chatswd and St Lenards effectively functin as the Lwer Nrth Shre market with similar drivers and characteristics. Nrwest, Macquarie Park and Sydney Suth are newer markets prviding mdern, business park style campuses that ffer ample car parking at affrdable rents and values. 22

Key drivers and influencers fr each f the nine metrplitan markets are prvided belw. Nrth Sydney Large, established ffice market; Accessibility and prximate t Sydney CBD; Negative absrptin (-10,000sqm) ver the last 6 mnths; Strng retail and service ffer; Exdus f sme tenants t better quality stck in Sydney CBD market; Lack f large cntiguus ffice flrspace; Cnstrained cmmercial supply and limited develpment pipeline; Strng pressure fr residential cnversins; Dminance f lder stck much prer quality than in ther markets. St Lenards Accessibility; Relatively high rental levels; Prximity t Nrth Shre residential areas; Lcal retail and services; High vacancy levels indicative f mderate demand; Exdus f sme tenants t better quality stck in Sydney CBD market; Strng pressure fr residential develpment and evidence f cmmercial supply withdrawals; Land reznings t residential reducing prevalence f cmmercial sites; Limited expansin ptential; Limited cmmercial pipeline supply; Transitining away frm cmmercial twards residential uses. Chatswd Accessibility; Cngestin in the CBD prblematic; Strng retail, entertainment and residential ffer; Significant increase in vacancy ver the last 6 mnths; High vacancy levels indicative f mderate demand; Lack f new cmmercial supply and pprtunities fr expansin; Land reznings frm cmmercial t residential uses reducing the lnger term ptential f this market; Redevelpment f Nrth Shre Hspital will supprt future demand fr assciated uses; Strng pressure fr residential cnversins; Planned Epping t Chatswd rail link will increase accessibility; N undevelped cmmercial sites remain s limited pprtunities t expand the cmmercial precinct; Transitining away frm cmmercial twards residential and medical related uses. 23

Nrth Ryde Well-established business park style ffer; Range f high prfile tenants; Gd accessibility; Fcus n hi-tech industrial sectr; Lw flrspace ratis; Flexible flrplates allwing warehusing and ffice space t be integrated; Affrdable rents and availability f n-site car parking; Infrastructure develpment including Macquarie Shpping Centre, M2/ Frenchs Frest access; Designatin f 2 x Urban Activatin Precincts at Nrth Ryde and Herring Rad; Pressure fr residential and ther nn-cmmercial develpment; In the cntext f the level f demand fr a range f uses, lnger term cmmercial expansin ptential is uncertain. Parramatta High accessibility and strng demand; Lack f stck in the 2,000-4,000sqm range; Likely t cntinue benefiting frm gvernment decentralisatin; Strng retail, entertainment and leisure ffer; Established market well situated t serve Sydney s west; Strng pressure fr residential cnversin; Planned infrastructure investment including Westcnnex and Badgerys Creek Airprt; Tightly cnstrained supply, particularly fr quality stck, driving up rents; Lack f gd quality stck is stifling the market; Difficulty in securing gvernment pre-cmmitments t facilitate new cmmercial develpment; Sme attractive medium term develpment prspects including Parramatta Square and Westfield Parramatta; LEP and zning ver the CBD prhibits residential, preserving the lnger term cmmercial ptential f this market. Sydney Olympic Park Strng transprt links; Well lcated in the gegraphic centre f Sydney; High level f amenity; Gd quality cmmercial flrspace; Tightly held market with lack f stck; Urban Activatin Precinct designated at Wentwrth Pint; State Gvernment managed; Sydney Olympic Park Masterplan envisages a greater fcus n residential rather than cmmercial; Availability f land fr expansin althugh this may be develped fr nn-cmmercial uses; Westcnnex infrastructure develpment and implicatins fr Parramatta Rad; Future expansin ptential uncertain. 24

Rhdes Accessibility; Gd quality stck cmprising entirely A-grade flrspace; Well sught after lcatin; Strng anchr tenants; N undevelped sites fr cmmercial uses Strng retail and service ffer; Mdern cmmercial ffice flrspace; Rhdes Masterplan; Prximity t Cncrd Repatriatin Hspital and Dame Edith Walker Hspital; Limited future expansin ptential. Nrwest Mdern, business park style setting; Prestigius ffice lcatin; Highly accessible via the M2/ M7 mtrway; Abutting Bella Vista Waters executive husing estate; Lw land and rental csts; Planned infrastructure investment including the Nrth West Rail Link; Expansin and intensificatin ptential. Suth Sydney Accessibility by car and rail; Prximity t Sydney Kingsfrd-Smith Airprt; Transitining away frm traditinal industrial uses; Lss f ptential land fr cmmercial develpment e.g. every site in Rseberry is under ffer fr residential; Strng fcus n residential develpment expected t cnstrain cmmercial supply; Evidence f cmmercial stck withdrawals fr residential cnversin. 4.3 Summary and Cnclusins Table 4.1 prvides a summary f the key market drivers and their presence in each f the ten precincts under examinatin. 25

Table 4.1 Market Drivers Sydney CBD Nrth Sydney St Lenards Chatswd Nrth Ryde Parramatta Sydney Olympic Park Rhdes Nrwest Suth Sydney Accessibility Pressure fr Residential Develpment Business Park Offer Traditinal CBD Offer Tight Supply Transprt Infrastructure Develpment Surce: Clliers Internatinal 5 SYDNEY CBD COMMERCIAL OFFICE CAPACITY 5.1 Develpment Pipeline Table 5.1 and Figure 5.1 utline majr cmmercial ffice supply in the Sydney CBD that is mted, prpsed r apprved. In ttal sme 836,000sqm f cmmercial flrspace supply is currently in the pipeline at varius stages f delivery. Of this arund 517,000sqm is DA apprved r under cnstructin and 319,000sqm is mted. 26

Table 5.1 Cmmercial Office Supply Pipeline Sydney CBD Prject Name Prject Address Lcatin Status New Build/ Vacant Refurbishment/ Backfill Year 70 Phillip Street 56-70 Phillip Street City Cre Under Cnstructin 5,370 2014 Red Crss Huse Cmmnwealth Bank Building 153-159 Clarence Street Western Crridr Surce: Clliers Internatinal, PCA OMR Jan 2014, Crdell s Cnnect Nte: *net increase in flrspace Under Cnstructin 12,000 2014 48-50 Martin Place City Cre Under Cnstructin 19,500 2014 MLC Centre City Cre Under Cnstructin 20,000 2014 TransGrid 180 Thmas Street Suthern Under Cnstructin 14,000 2014 Mney Bx Building 5 Martin Place (120 Pitt Street) City Cre Under Cnstructin 31,000 2015+ 20 Martin Place City Cre DA Apprved 16,000 2015+ Central Park (Frasers) Barangar (T2 & T3) Suthern Under Cnstructin 20,000 2015+ Western Crridr Under Cnstructin 166,500 2015+ 200 Gerge Street 190-200 Gerge St City Cre Under Cnstructin 38,500 2016+ 333 Gerge Street 1 Richard Jhnsn Square 331-333 Gerge Street Barangar (T1) City Cre Under Cnstructin 14,000 2016+ Western Crridr Under Cnstructin 101,000 2017+ Yung & Lftus City Cre Mted 37,698 2017+ 182 Gerge Street & 33-35 Pitt Street City Cre Mted 40,000 2017+ 151 Clarence Street City Cre DA Apprved 20,000 2017+ 33-35 Bligh St City Cre DA Apprved 24,000 2017+ AMP Circular Quay 50 Bridge Street City Cre Mted 70,000 2018+ City One 1 Carringtn Street City Cre DA Ldged 60,000 2019+ Darling Harbur Live The Ribbn Darling Harbur Western Crridr Under Cnstructin 15,000 2019+ 60 Martin Place City Cre Mted 16,000 2019+ 31 Wheat Rad 210-220 Gerge Street Western Crridr Mted 55,000 2019+ City Cre Mted 40,000 2019+ Ttal 746,698 88,870 27

Figure 5.1 Cmmercial Office Supply Pipeline Sydney CBD Table 5.2 depicts develpments in the pipeline f which we are aware in the Nrth Sydney Precinct. Of the DA apprved schemes nly 177 Pacific Highway is cmmitted due t a pre-lease t Leightn s. The ther tw schemes are dependent upn significant pre-cmmitments being made which is uncertain at this pint. Table 5.2 Cmmercial Office Supply Pipeline Nrth Sydney Precinct Prject Name Prject Address Status New Build/ Vacant Refurbishment/ Backfill Year ACU Extensin 8-10 Berry Street Cnstructin 2,472 n/a 2014 Nrberry Terrace 177-199 Pacific Highway DA Apprved 39,383 n/a 2016+ 100 Munt Street 100 Munt Street DA Apprved 40,100 n/a Mted Shpping Wrld Site 1 Denisn DA Apprved 45,720 n/a Mted Surce: Clliers Internatinal, PCA OMR Jan 2014, Crdell s Cnnect 127,675 Residential Develpment Residential sales prices in Sydney are at recrd highs and demand has been particularly strng within the CBD, exacerbated by a histric lack f residential supply within it. This has led t strng demand fr residential develpment sites in the CBD and pressure fr residential cnversins fr lder cmmercial stck. 28

City f Sydney Cuncil reduced the maximum allwable flrspace ratis fr new residential develpment nrth f King Street in the Sydney Lcal Envirnmental Plan 2012 (i.e. the City Cre). This suggests that, ging frward, new residential develpment will gravitate suth t Midtwn and the Suthern CBD. Althugh demand fr residential pprtunities is strng, SEPP65 requirements restrict the ptential fr residential cnversin n sme lder cmmercial stck. Figure 5.3 shws recent sales f sites in the CBD with apprvals fr cmmercial t residential cnversins. In ttal sme 161,000sqm f cmmercial flrspace will be withdrawn t facilitate new residential develpment. Table 5.3 Sydney CBD Cmmercial t Residential Cnversin Apprvals Address Cmmercial NLA Timing Purchaser / Owner 379-385 Gerge St & 38-48 Yrk St 11,317 1-3 years Fife Capital 161-165 Clarence St & 304 Kent St 5,399 1-3 years Crwn Grup Hldings 286 Sussex St 6,152 1-3 years Ausba Sydney Water (115 Bathurst & 339 Pitt St) 28,643 1-3 years Greenland Hldings Grup 9-25 Cmmnwealth St 2,654 1-3 years Private Investr 71 Macquarie Street 9,447 2-5 years Mivac & AMP Capital 227 Elizabeth St 17,254 2-5 years Far East 130 Elizabeth St 9,839 2-5 years CBUS 19 Pitt St 5,561 2-5 years Chinese Investr 54-58 Park St 19,128 2-5 years Far East 495 Harris St (Tabcrp) 10,125 2-5 years TBC 119 Kippax St 6,752 2-5 years Crnerstne Prperties NSW 59 Gulburn St 19,522 n/a Rxy Pacific 570 Gerge St 19,247 n/a Far East Ttal 161,039 EARMARKED 175 Liverpl St 49,583 n/a GIC Gldfields Huse (1 Alfred St) 24,214 2-5 years Valad/ Blackstne 338 Pitt St 18,580 n/a AMP 299 Elizabeth St 5,943 n/a Burcher Surce: Clliers Internatinal (2014) Cnversins are lcated in fringe areas and typically cmprise secndary grade assets n crner sites with gd views f the harbur, Hyde Park r the CBD. A snapsht f the lcatin f sme f the majr cnversins is prvided in Figure 5.3. 29

Figure 5.3 Snapsht f Cmmercial t Residential Cnversin Sites Surce: Clliers Internatinal (2014) The fllwing table prvides a summary f sales f majr CBD sites that may be suitable residential uses since 2012. In ttal these sites culd deliver ver 1,900 units based n Clliers yield estimates. Table 5.4 Sydney CBD Site Sales Ptentially Suitable fr Residential Address Sale Date Price Site Area Est Max GFA Est. Units DA Apprval at Sale? 161 Clarence St Mar-12 $28m 1,441 15,851 200 Cmmercial 333 Kent St Apr-12 $47.75m 1,518 16,698 177 11-15 Alberta St Sept-12 $11.55m 338 3,492 50 Residential 115 Bathurst St / 339 Pitt St Mar-13 $82.5m 1,969 41,194 400 Residential 9-25 Cmmnwealth St Jun-13 $20.1m 792 11,088 117 130 Elizabeth St Jul-13 $59m 973 13,622 144 50 Margaret St Aug-13 $66.75m 877 - - 430-450 Pitt St Nv-13 $36.9m 1,200 12,000 127 286 Sussex St Dec-13 $55m 1,337 14,707 156 227 Elizabeth St Dec-13 $143m 1,525 21,350 226 19 Pitt St Feb-14 $55m 911 11,914 (ttal) 60 Residential and Cmmercial 50 Park St Feb-14 $127m 2,057 22,627 256 Surce: Clliers Internatinal (2014) 30

With regard t the Nrth Sydney market, recent activity has seen secndary grade buildings withdrawn frm stck and cnverted t residential uses e.g. 80 Alfred Street in Nrth Sydney. 5.2 Years f Supply Assessment Methdlgy T determine the years f cmmercial ffice supply, Clliers has: Derived cmmercial flrspace grwth ver the last decade and calculated the wrker per sqm rati; Estimated future cmmercial flrspace demand t 2023 by applying refined wrker ratis t the latest Delitte Access Ecnmics Emplyment Frecasts. Refined wrker ratis reflect tenancies ccupying less cmmercial flrspace due t changing wrking practices; Cmpared demand t pipeline supply t determine hw lng it will take befre current demand expectatins are exceeded. Sydney CBD The analysis f years f cmmercial ffice supply fr Sydney CBD is shwn in Table 5.5. Table 5.5 Sydney CBD Cmmercial Office Years f Supply Assessment 2004-2014 Flrspace (sqm) 554,215 Emplyment 21,594 Wrker Rati 25.7 2014-2023 Flrspace 660,000 Emplyment^ 55,280 Average new build size 70,000 N. f Buildings 9 Upcming Supply Ttal (DA apprved, u/c & mted) 835,568 Ttal (DA apprved & u/c nly) 516,870 Shrtfall/Over Supply Flrspace +175,568-143,130 Years f Supply Abve 9 Years Flrspace +2.4-2.0 Surce: Clliers Internatinal (2014) Nte: ^ Rati f 1 wrker per 12sqm flrspace assumed fr new cmmercial ffice develpment pst-2014 reflective f market trends Based n ur assessment if all pipeline supply in the CBD eventuates, Sydney wuld have sufficient capacity t meet prjected demand ver the next 9 years plus a further 2.4 years i.e. ver 11 year supply. Sme f this supply is nly mted and flrspace indicative at this stage. Cnsidering nly flrspace which is already permitted r under cnstructin (excluding mted flrspace) Sydney CBD has sufficient capacity t meet the next 7 years supply. 31

This prjectin accunts fr new and knwn refurbished supply nly. At 1st January 2014 Prperty Cuncil f Australia data indicates that there was sme 374,000sqm f vacant cmmercial flrspace in the CBD. This wuld be capable f accmmdating a further 5 years grwth if it were all reccupied. Ntwithstanding this, stck withdrawals and the need fr refurbishment will reduce the quantum f cmmercial vacancies capable f absrbing market demand ging frward. Nrth Sydney The Nrth Sydney market is prjected t experience mderate emplyment grwth t 2023 f 4,100 additinal jbs. In the cntext f pipeline supply utlined in Table 5.1 Nrth Sydney can accmmdate between 15 years (excluding mted develpment) and 23 years supply (including mted develpment). 5.3 Secndary Stck and Ptential Redevelpment Sites Ptential secndary stck and redevelpment sites t accmmdate ffice demand in Sydney CBD are cnsidered belw. Shrt Term (up t 3 years) Shrt term supply in Sydney CBD indicated in Table 5.1. Supply is heavily fcused n large flrplate cmmercial uses, reflecting the need fr develpment t attain pre-cmmitments t ensure that it can prceed. Hwever, in the rder f 65% f cmmercial tenancies in Sydney CBD ccupy less than 800sqm. As such, there is a need t plan fr sme smaller tenancies which appeal t the majrity f the market, r at least ensure that large flrplates can be sub-divided t capture this demand. The cmmercial ffice market in the Sydney CBD is currently fairly weak due t a general lack f demand. Vacancy levels fr premium flrspace are fairly high necessitating high rental levels. Demand is strngest fr B-grade stck as tenants are seeking value fr mney. This market psitin will change ver time, but given the size f the vacant stck and the implicatins f Barangar and the need fr backfilling, existing develpment and vacancy is deemed t be mre than sufficient t accmmdate shrt term demand. Medium Term (up t 10 years) Medium term supply which is planned, permitted r mted is indicated in Table 5.1. The majr pprtunities in the medium term are fcused arund Barangar and Circular Quay. There is ptential fr further supply additins in the City Cre t eventuate ver the next decade, depending upn the market. At present the value f the buildings exceeds the value f land making site assembly difficult but ver time this will change as the market fluctuates. Outside f the CBD, the Australian Technlgy Park presents a gd pprtunity t meet demand in the medium term. Ultimately the ATP is deemed t have sufficient capacity t accmmdate a ttal f 222,486sqm f grss flrspace 1 less than half f which has s far been develped. 1 Surce: Australian Technlgy Park 32

In the medium term, pprtunities fr significant supply additins in Nrth Sydney are cnsidered t be limited. This market is highly cnstrained and has already witnessed cmmercial stck withdrawals t meet demand fr residential uses. Pipeline cmmercial ffice supply analysis indicates that the few cmmercial develpments in the planning pipeline will be mre than sufficient t meet limited frecast demand grwth in the medium t lng term but may nt eventuate due t a lack f pre-cmmitments. As such we d nt envisage any additinal majr sites cming frward fr cmmercial ffice develpment in Nrth Sydney in the medium t lng term if market cnditins persist and frecast demand eventuates. Metrplitan market pprtunities t absrb this demand are limited. The Lwer Nrth Shre markets (Nrth Sydney, Chatswd, St Lenards) are cnstrained and are transitining twards residential and assciated uses. The Sydney Olympic Park and Rhdes and Nrth markets are fairly strng but may have limited capacity t expand given pressure fr residential develpment as an alternative. Suth Sydney has lts f expansin ptential but is als mving twards a residential fcus. This dynamic is als influencing the Nrth Ryde market and future expansin ptential is uncertain. Parramatta and Nrwest have the strngest ptential t absrb cmmercial ffice demand in the medium term, utside f the Sydney CBD. This reflects their capacity t expand r intensify cmmercial uses and given that they will benefit frm significant infrastructure investment. Lng Term (> 10 years) In the lnger term, sites fr large-scale cmmercial ffice expansin in Sydney CBD are cnsidered t be cnstrained. In the City Cre and Western Crridr pipeline cmmercial ffice develpment will have been cmpleted and there are few bvius large scale develpment sites apparent. Due t high land csts site amalgamatins will be challenging. Whilst we expect sme supply grwth t be realised, thrugh refurbishment f lder stck and small develpment sites, large-scale additins t meet a significant prprtin f future demand are restricted. We expect the character f the Midtwn/ Suthern area t evlve ver the next 10 years t accmmdate a greater mix f uses and a strng cmpnent f residential. As this area develps we expect residential uses t dminate the new develpment at the expense f new cmmercial develpment. With respect t the Chinatwn Area, given the highly fragmented and private nature f land wnership, the lnger-term perspective f wners and the high level f retail rents currently achieved, we d nt cnsider this a realistic prspect fr cmmercial ffice uses beynd 10 years. Ntwithstanding this, Central Statin ffers the greatest pprtunity t meet lng term cmmercial ffice demand in Sydney CBD. Optins t accmmdate large scale cmmercial ffice additins t the Sydney CBD culd include: Central Statin Develpment f the airspace abve Central Statin has been mted. Undubtedly this is an excellent lcatin fr develpment in terms f lcatin and has the ptential t deliver a sizeable quantum f flrspace. Develpment f the site will be challenging t deliver in the cntext f the active nature f the site, but wuld represent a far cheaper ptin t facilitate future cmmercial develpment than ther sites nearby given that it is gvernment wned and wuld nt require amalgamatin; Pyrmnt/ Ultim This area abuts the Western Crridr t the west and currently cmprises a mixture f lw-rise cmmercial ffice uses. There are sme large sites which culd be suitable fr redevelpment in the lng term. It is sme distance frm the cre cmmercial submarkets in the CBD even with the expanding f the cre int the Western Crridr; 33

Surry Hills This area is situated t the east f Central Statin and cmprises a mix f warehusing, residential, retail and cmmercial ffice uses. Given that land is mre affrdable in this area there may be sme ptential fr site amalgamatin and redevelpment t accmmdate cmmercial ffice develpment althugh this is likely t make nly a mdest cntributin t meeting future demand. 5.4 Implicatins Sme f the barriers and risks identified by Clliers, based n the analysis set ut abve, fr Sydney maintaining/ enhancing its rle as a glbally cmpetitive city in the cntext f cmmercial uses are: Residential highest and best use Strng demand fr residential units in Sydney CBD has increased demand fr residential develpment sites and cnversin pprtunities ver the last year adversely affecting the cmmercial prperty market. This situatin is expected t cntinue in the shrt t medium term. Given the lack f residential dwellings in the CBD cmpared t ther capital cities in Australia, we believe there is sme way t g befre demand fr residential sites in Sydney begins t mderate; Lack f develpment sites In the lng term Central Statin culd ptentially accmmdate a sizable amunt f future cmmercial ffice but withut this site there are n ther bvius ptins fr the CBD t meet prjected lng-term demand. Lack f large scale supply ptins wuld cnstrain the ecnmic develpment and cmpetitiveness f Sydney CBD; Pedestrian and public transprt accessibility Accessibility n ft and by public transprt within the Sydney CBD is variable. Gerge Street is cngested and walking between different parts f the CBD, frm the City Cre t Darling Harbur, fr example, are relatively lengthy and subject t pr amenity. Ptential actins gvernment culd cnsider t mitigate risk include: Undertake initial investigatins regarding the feasibility f develping the airspace abve Central Statin fr cmmercial ffice and/ r ther uses; Explre ther pprtunities t meet lng-term cmmercial ffice demand if Central Statin des nt eventuate. This culd include investigating the feasibility f site amalgamatins and develpment in Ultim/ Pyrmnt and the redevelpment f gvernment held assets within the CBD; Seek t influence residential develpment within Sydney CBD thrugh land use znings and FSR restrictins. Identify and safeguarding suitable land fr future cmmercial ffice develpments rather than residential develpment. Parts f the City Cre and Western markets culd be preserved frm cmmercial uses, cmparable t the apprach applied in Parramatta CBD; Pursue measures t enhance public transprt and pedestrian mvement arund the CBD and cnnectivity between different precincts as a pririty. The planned pedestrianisatin f Gerge Street, the light rail scheme and the new pedestrian link frm Wynyard rail statin t Barangar will assist; Identify and safeguard suitable land fr future cmmercial ffice develpments rather than residential develpment; and Explre the ptential capacity fr metrplitan markets t meet future demand. Infrastructure investment and the expansin f Sydney via the Nrth West and Suth West Grwth Centres culd create pprtunities t create new, well cnnected cmmercial ffice markets if existing metrplitan markets cannt accmmdate anticipated demand grwth in these markets. 34

Clliers Internatinal www.clliers.cm.au 35