Strata offices on Sydney's lower north shore a hit with owner-occupiers

Mr Domingo recently helped guide Mirvac’s successful sale of the last of the 32 strata commercial suites occupying the lower podium floors of St Leonards Square, due for completion in stages from September.

The development is one of the largest commercial strata projects to take place on the north shore in the past decade.

Mr Domingo pointed to the demand for the units as proof that the strata office market was strong.

“This is the largest commercial strata development in the past 10 years, and the fact that it has sold out before building completion demonstrates the strength of demand,” said Mr Domingo.

Values across the north shore – which takes in markets such as Chatswood, St Leonards and North Sydney – have been increasing in the past 12 months as a direct result of changing land use policies in the area, according to Knight Frank sales executive Harry Kimpton, citing developments such as that proposed under the St Leonards and Crows Nest 2036 plan.

“The reason for the upward pressure on price is there’s been a fair bit of stock withdrawal from primary markets like North Sydney and secondary markets like Crows Nest due to the rezoning of space to residential,” Mr Kimpton said. 

Controversial plans (which were dealt a blow last week by the Independent Planning Commission)  for about 2400 apartments in towers up to 19 storeys high have been touted for an area of around five streets adjacent to the Pacific Highway in St Leonards, close to where Mirvac’s St Leonards Square development sits.

Those plans may be in doubt, but business owners are still struggling to juggle the long-term planning for their business with the uncertainty of demolition clauses in leasing contracts – which are a common occurrence on the north shore, according to both agents.

“A lot of buyers would have been traditional tenants who think now is the time to buy and now is the time to secure their future, tenants who are sick and tired of leases with demolition clauses. There are plenty of leases in Crows Nest and St Leonards with demolition clauses of two to three years,” Mr Kimpton said. 

As a result, many are seeking out new strata office developments with long-term prospects.

“I think some of the buyers who had bought in the Mirvac development were already in St Leonards. I know some of them were located in the building next door and I think they were safeguarding their future by buying a suite in the Mirvac development. Their property is currently zoned for higher residential usage [and so] a lot of them were shoring up their future in that location,” Mr Domingo said.

One such buyer was Jason Abrahams, director of Critique Private Clients, a wealth-advisory firm.

Mr Abrahams said that Critique had occupied a suite at its current address at 460 Pacific Highway, St Leonards, for the past 10 years.

“We own the place where we’re currently based, which is next door. We’ve been there for 10 years. There’s been talk of the building being sold at numerous strata meetings, so we decided to purchase next door,” Mr Abrahams said, adding that the firm was attracted to the advantages of a new development.

“Where we are now the lifts were never renovated … There are inherent issues with the building.”

Critique paid $1.825 million for their 192-square-metre suite on level three of Mirvac’s St Leonards Square development.

Mr Abrahams said opportunities to buy in the area were incredibly limited.

“In this area there’s not a lot of opportunity to purchase commercial space. There’s a lot of space for lease, but not a lot of opportunity to purchase … When we came for our 9.15 appointment, every sales agent was already busy.”

But the central location and easy transport links – including the future metro rail line – meant remaining in the area was a priority for the firm.

“I like the area because we’re close to the city. One of our main businesses is financial planning, and a lot of our customers are retirees or near retirement. They can’t find parking in the city and driving to the north shore is a lot easier for them.

“From a staff point of view the transport options make it an ideal place to work.”

The other strata units in the building have been sold to a broad range of clients, with the vast majority owner-occupiers, according to Mr Domingo.

“The industries were quite varied, medical, IT, finance, property and construction,” he said.

Mr Kimpton is anticipating demand for north shore strata offices to get stronger.

“Short to medium term, absolutely. Considering you’ve got the draft St Leonards Crows Nest plan that has earmarked a lot of the sites around the new metro for heightened density,” Mr Kimpton said. 

“Money is still pretty cheap, and so for a lot of these occupiers it actually works out to be more cost effective to take out a mortgage on a property than to lease them. 

“There’s some good investment vehicle strategies where businesses can lease from themselves and there are good tax and financial benefits for owner-occupiers.” 

The other element driving demand on the lower north shore is spillover from the hot CBD strata office market, where escalating values and limited stock have prompted businesses to look further afield.