This is most apparent in the office strata sector which has been taken over by developers looking for residential sites and in some areas, the buying of asset for the new metro rail by the NSW Government.

The dramatic fall in stock has seen an average 50 per cent rise in the commercial property prices on the city fringe, while gross leasing prices have grown 25 per cent from $450 per square metre to $550 per sqm.

The principal of DB Property, David Brown, said driving the lack of supply as the fact that potential sellers are seeing no other asset class, including residential, the sharemarket and bonds, as providing the same value as holding and leasing commercial property.

"We are seeing this year a 30 per cent rise in leasing inquiries and that is driving many owners to strata their commercial buildings and sell levels and suites in them," he added.

Over the last three months, DB Property has sold $25 million of strata suites and levels of commercial buildings in Surry Hills, including 15 suites at 50 Holt St sold off the plan from $11,000 - $13,000 per sqm.

Other record sales have been posted in Holt, Foveaux, Reservoir and Buckingham Streets, with net yields ranging from 4 per cent to 6.5 per cent.

"While the price per square metre is high, the rental returns for owners are still very healthy, compared with a lot of residential properties, and as a result, property owners are splitting up their buildings to smaller suite sizes to gain better returns," Mr Brown said.

"Meanwhile others are selling whole floors and suites to the many investors seeking exposure to the fast-growing city fringe commercial areas, which will eventually capitalise further on improved public and private transport links, like the light rail"."

Mr Brown said there has been continuing interest among investors, who are taking advantage of record low interest rates and are seeking better returns in commercial property than residential.

"With the strong price growth, strata suites and levels are becoming a lot more attractive to investors and building owners should be taking advantage of this shift", he said.

JLL's head of office leasing North Sydney, Paul Lynch, said the leasing market was also being impacted by the changing demand and shortage of assets.

"The displacement of commercial tenants in St Leonards is exerting pressure on the prime and secondary office markets of North Sydney and Chatswood," Mr Lynch said.

Mr Lynch said the withdrawal of stock and re-zoning of land was not unique to St Leonards and was also taking place on the periphery of the North Sydney and Chatswood CBDs.