Our Upstate Commercial leaders, Vincent West (Head of Commercial Property) and Paul Cunningham (Licenced Real Estate Agent) dive deep into the current Commercial Property Market. Continue reading to see their expert insights and opinions on Northern Beaches Commercial Property.
Q. The Northern Beaches generally get lumped into Northern Sydney on all the market reports. How does that reflect on our market here (Northern Beaches)?
A – The Northern Beaches is a sub-market that can be quite different from the rest of Sydney. Even within our market there are many sub-markets. Industrial, Office, retail & bulky good retail. Suburb, street, which side of the street, which end of the street ect. A great example of this is Manly Corso as it gets a higher rate per sqm on the Southern side as it is the natural ant track from the wharf and gets the Winter sun.
Q. How do you answer the common question of – What is my property worth?
A – This can be like asking me what’s a car worth on the Northern Beaches. So, we like to do a market analysis based on the specific. Property type, tenanted investment or owner occupier, size, shape, access, exposure, natural light, parking. We use sale and lease history data and on-the-market data.
The advantage for owners where we manage their property, is we have all the data on hand, and can run the numbers and comparables very easily. We do this a lot for those that just needed it for their accountant annually.
Q. What’s the sector or property type that’s performing the best?
A – Industrial by far, simply sale and lease prices have skyrocketed over the last 3 – 5 years and haven’t softened yet at all.
It is a supply problem nationally, but particularly here on the Beaches with so little land zoned industrial.
To get any more floor space here you need to knock down an old building and build a new one and when the old ones are worth so much it is prohibitive to get developments to stack up.
Land values are in the vicinity of $3,500 – $4,000/sqm if you can even find something.
Q. What yields are people paying today since the rate rises for investments?
A – The market is segmented by asset class and price both of which make a big difference along with many other factors.
In general;
- Shops 5.5 – 6%
- Small office 5 – 5.5%
- Large office 6%
- Industrial – Strata 5 – 5.5% and freehold 4 – 5%
There are certainly variations outside of these yields which can go quite far on either side for specific properties in specific locations with long leases with quality tenants. Property is still one of the best places to park cash right now and there seems to be plenty of cash around.
Q. How is buyer & Lessee demand at the coal face?
A – Both of these are still quite strong on the whole, there has been a drop from a pretty high baseline.
Investors are resetting their expectations and based on that many are missing properties to owner-occupiers particularly in the industrial market.
Industrial leasing particularly for small strata is incredibly strong with people missing out by thinking they can negotiate and get some rent-free. Those days are gone. We are having to increase industrial rents considerably when they come up for market reviews and tenants aren’t liking increases up to 20-30%. They are big jumps but that is just what the market is doing and we make sure our managements are full and at market.
Q. How is retail performing
A – Retail is a bit of a mixed bag but in general is performing well. There is quite a bit of turn over which seems to be clearing out some dead wood and bringing in a better quality of tenant. It seems if you are a retailer who has survived the last 2.5 years then you are probably doing well. Suburban retail is doing well other than high tourist areas such as the Corso but that is picking up again slowly but surely. You can’t deny Manly is one of the best places n the world to visit.
Sale – $5,000 – $30,000/sqm plus
Rents – $400 – $2,000/sqm
Exposure exposure exposure….
Q. How is Industrial performing
A – As we touched on earlier it is basically red hot! Leasing and selling. Prices going up and little on the market. Not much more to add to that
Sale – $4,000 – $8,000/sqm and even up to $10,000 for smaller new stock
Lease – $200 – $350/sqm
Q. How is Office performing
A – Office is a bit of a mixed bag as well.
Small strata office in general is doing well and really well in places like Manly with vacancy rates lower than I have ever seen them. A larger office in Belrose and Frenchs Forest is still a bit of a struggle with some oversupply and solid incentives being offered.
It really seems that the A-grade stock is moving well and holding good pricing but unfortunately the Northern beaches has quite a lot of old stock that can hang around.
Sale – $4,000 – 6,000/sqm but somewhere like manly will be over $10,000/sqm
Lease – $275 – $500/sqm but again manly $700 – 1,300/sqm
Q. Should commercial owners be selling or holding?
A – I get asked this a lot and also what would I do with the money?
This depends on people’s personal financial position, stage in life, when they purchased, the income that the asset is producing, and what type of asset. There has been exceptional growth in some asset classes. Some people have chosen to jump from these highs, and latch onto the Residential decline, setting themselves up to take advantage of when the Residential market bounces back and enjoying the current increase in rental returns.
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The Upstate team
