In 2015 and most of 2016 investors found it hard to compete with developers in purchasing office properties on the Lower North Shore. Developers had a very optimistic outlook and were prepared to pay strong prices for most properties with or without development approvals.
Although the development cycle has slowed down developers are still keen to purchase well located properties with good development potential and holding income to ride out the current market until the next development cycle.
Coinciding with the peak of the development cycle was the announcement of the metro train line in 2016 which combined together created a sudden withdrawal of traditional office properties for residential redevelopment and compulsory acquisition. This resulted in the relocation of tenants into an already declining office market and hence vacancies and incentives have been driven down and rents up. With very little new commercial office developments in the pipeline for the next couple of years the outlook is for this current low vacancy environment to continue.
This low vacancy environment has given investors the confidence to enter the market again. Investors are taking the view, even with the current low yields being paid, there is a real prospect that with rising rents these initial low yields should increase. Industry experts are predicting effective rent growth of 5% to 6% for the next 12 to 24 months. Investors are also confident about potential capital growth in land prices particularly with properties that are located close to the new metro train stations at Crows Nest and Victoria Cross (North Sydney).
Prosper Group recently assisted one of their clients in an off market purchase of an office building in St Leonards that was 100% leased to an international tenant with 4 years remaining on their lease. The property was zoned R4 High Density Residential and was purchased for $13.75 million with a 5.4% net yield.
If you are looking to purchase commercial property on the Lower North Shore and would like to obtain an advantage over other buyers in the market then contact Damien Holliday or Alex Henderson at Prosper Group.