Sydney Commercial Market Update
Prevailing low interest rates are making the returns available for commercial, industrial and retail property investments look attractive within the marketplace. A review of transactions across all sectors for the first six months of this year, allowing for settlements not yet recorded, confirms a steady level of transactions continuing on from the second half of 2012.
Again rates of return vary through each market although retail still retains the crown with tighter returns from a 4.0% to 8.0% range, particularly within the mid $1 to $5 million price range, slightly higher returns typical for properties below $1 million dollars. This is no doubt a reflection of the quality of the individual investments. Industrial investment transactions reflect higher rates typically from 7.0% to 9.0% and above for properties over $5 million in value.
A recent NAB commercial property index confirms a response to lower interest rates, the market for commercial property now entering a recovery phase with expectations of improvement across all commercial property markets in the coming years.
Stronger levels of demand in the rental market, particularly for industrial properties below 500m2 in area, have been confirmed by local industrial agents improving the potential for growth. An overlooked factor in the industrial sector is the new zoning categories such as B5 Business Development, B6 Enterprise Corridor and B7 Business Park, replacing the former industrial zones in some areas. Some areas of the retail and commercial office market are now moving into former industrial areas and this is having further impact on available industrial stock.
Industrial sales activity also appears to be improving, with Rod de la Harpe of Industrial Zone Real Estate agents, reporting strong off the plan sales activity for a new 6 lot Strata development at Mavis Street, Revesby, with high clearance units achieving rates from $1,514 to $1,738/m2, sale prices reflecting capital values from $1.3 to $2.05 million. One lot of 943 m2 has been leased at $111.35 net pa.
Further evidence of investor confidence was the purchase of a new high clearance freestanding warehouse of approximately 1,287m2 at Avalie Road, Prestons, at $2,050,000 in January this year. Purchased by an investor, the property currently in vacant possession, is being offered for lease with an asking rental indicative of 6.9% net return, excluding vacancy costs. The available depreciation benefits would have also influenced this sale.
It is speculated that continued improvements in the residential market will lend confidence to commercial markets.
Greville Pabst, CEO