Sydney retail market rises while rents remain steady: HTW

Sydney’s retail market has grown substantially over the past 12 months, according to a recent Herron Todd White report.

The property valuation firms says that the retail market in Sydney has seen substantial growth over the past 12 months as a result of increased demand for good investment assets, growth in rental income and generally lower vacancy rates.

The next 12 months look set to follow a similar trend. Increased demand from investors will continue to drive the market.

Properties with established retail tenants will be popular this year.

“Late in 2016 we saw some strong sales which showed tight capitalisation rates for assets with strong lease covenants, including some with sub 5% capitalisation rates in the Sydney CBD,” the report stated.

The demand for CBD assets remains strong as the buzz around infrastructure improvements continues.

Generally rents look likely to remain stable this year, HTW noted although an increase in prime locations was evident in 2016 with a strong probability of this continuing in 2017.

"Recent media coverage of failing fashion retail chains may have some impact on demand from tenants.

"However food and beverage outlets seem to be going strong in most locations, with demand for these types of retail properties likely to continue.

"Suburban retail assets with good lease covenants have also seen growth over the past 12 months.

"This is likely to continue as investors look for strong performing assets with future growth potential."

Strip retail with a history of good retail trade such as King Street, Newtown; Darling Street, Balmain; and Crown Street, Surry Hills have all seen an increase in sales activity which looks set to continue in an upward trend in 2017.

Looking ahead, the outlook for retail in Sydney overall remains positive for 2017, HTW added.

“We expect prime locations to continue to perform well along with properties perceived to have growth or redevelopment opportunities in the future.

"That said we are of the opinion that the market is reaching the peak of the cycle and any tightening of monetary policy or increase in the cost of debt will result in the prevailing investment yields not being sustainable.

"For the time being though, all signs are that 2017 will be a good year for retail assets,” the report stated.