Why this St Leonards office block has tripled in value in five years

If sold at the expected price, the property could sell for $10,684 on a per square metre basis – trumping the nearby 154 Pacific Highway, which fetched about $9300 a square metre in June 2018. That sold for $60 million.

CI Australia’s associate director of capital transactions Nick Lowry, who is selling the property, attributed the value surge to the extensive improvements undertaken to the building in the past five years, as well as several market factors.

“The main reason was that the building was a bare shell, there was no flooring in place, no ceilings, services needed to be put in, the building was completely vacant,” he said.

There is a total 1400 square metres of office space. Photo: Supplied

“It was obviously a different market back in 2014; vacancy rates were in the double digits, the Crows Nest metro station wasn’t announced and the (Department of Planning’s St Leonards and Crows Nest) draft plan has also come into play for this precinct as well.”

While the site supports floor space of up to 2730 square metres, the current building has a net lettable area of 1404 square metres – about half of the maximum allowance, which Mr Lowry described as “under-utilised”.

“There’s the ability to add a lightweight structure on top of the roof, subject to council approval, to increase the NLA and you could potentially convert some of the car parking to additional office space given that (two levels of it are) above ground,” he said.

Zoned B3 commercial core, the property sits along the corridor which has been earmarked for more mixed-use development, which could mean a change of use in the future.

“The current use is in line with the zoning, however, given that there’s a mixed-use precinct which is being touted along the Pacific Highway, then it’s conceivable that there’s probably a higher and better use as opposed to commercial (offices) down the track,” Mr Lowry said.

The building is part of an area that is earmarked for mixed-used development. Photo: Supplied

And with an estimated fully leased net income of $920,000, the agent expects major interest to come from investors as well as those who will want to occupy some space within the building while collecting income from the remainder of the property.

Mr Lowry pointed out that supply of secondary stock in the lower north shore has been diminishing as many have been converted into residential developments, including JQZ’s 88 Christie Street and Mirvac’s St Leonard’s Square at 472 Pacific Highway.

“There’s only 10 buildings in St Leonards between 1000 and 2000 square metres. As the rezoning starts to take shape, we expect that this profile of building will continue to diminish in supply because they’re being redeveloped and not replicated,” he said.

Co-agent and managing director of North Sydney at CI Australia Bevan Kenny noted that the St Leonards vacancy rate of 6.1 per cent is at its lowest since January 2001.

The uptake of space in St Leonards and Crows Nest clocked up about 14,500 square metres in the 12 months to January 2019 – exceeding that of the Sydney CBD and Parramatta CBD at 10,443 square metres and 13,614 square metres respectively, Mr Kenny said.

“Coupled with an anticipated lack of new supply and further withdrawals, we expect the ongoing tightening of the St Leonards office market,” he said.

Currently held by a private investor, 178 Pacific Highway is anchored by a new five-year lease to Nature Care College with options until 2036. It occupies a 780-square-metre site and has parking for 42 cars over 2.5 levels.