Optimistic time for Sydney retail industry: HTW

Sydney’s retail market has continued to rise, according to Herron Todd White’s (HTW) latest June report.

The property investment firm says it has noted increased average market rental rates and values.

“Since the start of 2017, the Sydney retail market has continued its upward movement,” the report stated.

“The increase in both average market rental rates and capital values has continued.

“Increased demand from investors has continued to drive the market.

“The demand for CBD assets remains strong, particularly as infrastructure improvements continue.

“Across the board, Sydney is continuing to experience yield compression in the commercial domain.”

Heated residential markets and low borrowing costs have compressed all areas Herron Todd White says.

“A heated residential market along with an inherently low cost of borrowing have seen yield compression across all sectors over the past 12 to 24 months,” the report advised.

“There is strong appetite for retail properties with long term lease covenants.

"We consider this trend will continue while supply remains relatively low,” the report commented.

Entry level retail opportunities are tight at the moment in the outer and middle suburbs Herron Todd White advises.

“Entry level opportunities in the retail market are constrained to strata lots in the outer and middle ring suburbs of Sydney.

“This market has had an increase in supply due to the increase in mixed use developments coming onto the market.

Typically these assets are in fringe retail locations prone to longer vacancy periods and are often best suited to owner-occupiers.”

Mixed use retail opportunities below $1 million is very uncommon Herron Todd White states.

“There are very few mixed use retail opportunities below $1 million,” it said.

“Recent sales indicate that some suburbs such as Beverly Hills, Haberfield, Chester Hill and Leichhardt still have some limited mixed use options below $1 million.

“Many of these assets are purchased based on the future redevelopment potential.

“Strata lots presently represent the main opportunity for entry level buyers.

“The inner west, south Sydney and central west areas all have options priced below $1 million.

“Typically these assets are strata lots less than 100 square metres.

“If they have secure long term tenancies, these assets represent an investment option for entry level buyers.”

Herron Todd White comments that stock supply has increased due to redevelopment works in Sydney.

“Supply of this stock has significantly increased due to the redevelopment of many parts of Sydney,” it said.

“In terms of current yields, these assets are trading below 6% with some recent examples showing yields below 4.5%, particularly where the asset has a good lease covenant.

“Examples include leases to medical centres, cafes and dry cleaners.

“The outlook for retail in Sydney remains positive for 2017.

“Prime locations continue to perform well.

“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.”

A retail building at 283-285 Parramatta Road, Leichardt (above) has been listed for sale.

Similarly a retail property at 8/159 Penshurst Street, Beverly Hills (below) has been listed for sale.