Core Insights - The U.S. life sciences sector is experiencing a significant increase in vacancy rates, reaching 23.9% in the second quarter, which is a rise of 70 basis points quarter-over-quarter and 520 basis points year-over-year [2] - Asking rents are softening, with an average decline of 3.3% year-over-year, now at $67.88 per square foot, influenced by increased vacant sublease space [5][6] - The construction pipeline is contracting, with only 3% of inventory under construction, indicating a shift towards build-to-suit projects rather than speculative developments [3] Vacancy Rates and Market Dynamics - Vacancy rates in the life sciences sector have reached a new high, leading to increased concessions such as free rent and tenant improvements becoming standard [1] - The market is struggling with soft demand and a wave of new construction completions, contributing to the high vacancy rates [2] Rent Trends - Rent growth for lab and cGMP space is slowing, with an average increase of only 0.7% from the end of 2024 across 16 major markets, although rents are still 4.7% higher than at the end of 2023 [4] - Key markets like Boston, San Francisco Bay Area, Raleigh-Durham, and New Jersey have seen more pronounced rent declines, with New Jersey experiencing a drop of 5.3% [5] Sublease Space Impact - The increase in vacant sublease space, which is typically priced lower than direct available space, has contributed to the overall decline in average asking rents, with sublease space rising to 4.0% [6] - As the availability of sublease space decreases, its negative impact on rents is expected to lessen [6] Construction Activity and Future Outlook - Construction activity is at its lowest level since 2019, with just under 8 million square feet, allowing the market more time to absorb the vacant space delivered over the past two years [7] - This slowdown in construction is anticipated to help normalize high vacancy rates in some markets over the longer term [7]

Demand and Market Trends - Demand for premium office spaces in North Sydney is strong, with a net absorption of 80,690 sqm leading to a decrease in vacancy rates from 17.8% to 15.7% as of mid-2025[13] - The average prime net rental rate in North Sydney increased by 2.3% year-on-year to $930/sqm[7] - The vacancy rate for premium assets tightened to 0.9%, highlighting a significant market performance differentiation[14] Supply and Development - North Sydney's total office stock stands at 912,690 sqm, with premium assets now comprising 43% of the total, up from 27% a decade ago[16] - The next major supply addition in North Sydney is the Victoria Cross OSD, expected to be completed in Q1 2026, with an additional 55,000 sqm[17] - Macquarie Park's overall vacancy rate reached a historical high of 22.2% as of July 2025, with a net absorption of -30,890 sqm in H1 2025[25] Incentives and Rental Rates - Average incentives in the North region have risen to 40%, impacting effective rental rates, which have decreased by 1.4%[19] - In Chatswood, the average prime net rental rate increased by 2.5% to $647/sqm, while secondary net rental rates remained stable at $520/sqm[48] - The average effective rent for premium assets in Chatswood decreased by 6.7% to $328/sqm due to rising incentives[48] Investment Activity - The North Shore market has seen limited transaction activity since 2023, with only two significant deals in 2024, indicating a shift in investor focus towards core CBD assets[57] - Current premium yields in North Sydney are reported at an average of 7.25%, with a yield spread of 122 basis points compared to Sydney CBD, the highest on record[58] - Investor confidence is increasing as financial markets stabilize, with various groups seeking to deploy capital for attractive entry points[59]