Demand for Inner Sydney commercial assets on the rise: Ray White

Sydney’s inner east is expected to see robust demand for commercial assets in 2017 after almost $370 million worth of sales last year, says a report from Ray White Commercial.

There were more than 150 commercial sales in the inner east in 2016 with Surry Hills accounting for 45 per cent of the deals, according to Samuel Hadgelias of Ray White Commercial NSW.

“The inner east market (which includes Surry Hills, Redfern, Darlinghurst and Woolloomooloo) offers a wide array of investments at varying price points,” Hadgelias said in Between the Lines – Inner East Sydney Commercial Report February 2017.

Being close to the Sydney CBD, demand is strong from both smaller investors interested in retail or office suite holdings together with larger investors and developers looking for office buildings, larger retail holdings and possible development sites, the report said.

This demand is unlikely to subside into 2017 given the low interest rate environment and appetite for quality, well located assets which will result in further expansion of the capital value range achieved and continued lows in investment yields.

With access and cost of financing still reasonably low coupled with increased demand for stable investments for private investors.

Retail assets have generated yields as low as 4 per cent across the inner east while office assets can range anywhere between 5.5 per cent and 7 per cent, he said.

Hadgelias said capital values across the markets vary considerably depending on the type, quality, location, size and lease covenant of the asset.

He said average values achieved in Redfern are at $11,059 per sqm, slightly below the Darlinghurst rate of $11,593 per sqm, while Surry Hills has an average of $13,592 per sqm and Woolloomooloo $13,988 per sqm.

“Looking at office assets alone, this average is closer to $16,000 per sqm keeping in mind potential redevelopment opportunities.”

Meanwhile, retail averages $11,430 per sqm and there is a wide variation in this asset class depending on access.

“In addition to potential redevelopment, the strength of the office market in the city fringe can further be explained by the tight Sydney CBD vacancy environment, currently just 6.20 per cent (January 2017).”