Bullish outlook continues for Sydney commercial property

This was due to more than 55,000 square metres of withdrawals in the same period, while stock additions totalled about 28,000 square metres, compared with 98,000 square metres in Melbourne’s CBD.

Notably, Investa’s Barrack Place at 151 Clarence Street was the only new A-grade office development delivered in the Sydney CBD in 2018.

Limited new supply is anticipated to enter the market this year, with expected developments including 60 Martin Place, to yield 38,600 square metres of space; 100 Broadway, providing about 5500 square metres; and 1 Sussex Street, which will create 10,000 square metres.

But space in these fresh projects are already being snapped up prior to completion – 60 Martin Place has secured more than 60 per cent of pre-leases, while both 100 Broadway and 1 Sussex Street are fully leased.

Such a shortage of new stock coupled with a tight vacancy has fuelled rental growth, with gross base rents for premium office buildings surging by 11.2 per cent to $1300 a square metre and A-grade stock increasing by 11 per cent to $1030 a square metre, according to Colliers International figures.

Traditionally seen as the poor cousin in the three core assets, industrial property retains its rising star status as its price boom continues.

Industrial land values in Sydney for blocks of up to 5000 square metres have climbed by 17 per cent in the 12 months to January 2019, while the figure is even higher in south Sydney at 22 per cent, Knight Frank data shows.

Larger sites of up to five hectares have escalated in value by 12.7 per cent across broader Sydney.

While the growth is strong, the higher value increases in the smaller category is an indicator of solid pent-up demand for last-mile facilities. Smaller warehouses of up to 10,000 square metres near key metropolitan areas will become more popular to accommodate last-mile delivery, rather than one giant distribution centre.

The growth in land values has driven a rise in speculative development – more than 40 per cent of project completions in 2018 were built before any pre-commitment, evidence of high developer confidence.

Such sentiment is not without reason, with all speculative developments in Sydney in 2018 pre-leased before the projects reached completion.

Many of these projects are in western Sydney, including Ingleburn Logistics Park and Yennora Distribution Centre – both by Stockland – as well as Mirvac’s Calibre Estate in Eastern Creek.

On the retail front, $3.17 billion of assets changed hands in NSW in 2018 – down by 22 per cent from the year before, according to Colliers International research.

NSW is the most active market in the country, accounting for 38 per cent of the total retail investment market in 2018.

While the retail sector is obviously facing headwinds as online shopping grows in popularity, Australian shopping centres are becoming increasingly aware of the need to rethink their retailing strategies to stay relevant.

Many are making it a priority to incorporate both online and offline shopping in a multi-channel strategy, while still investing in improvements to the shopping experience to drive foot traffic and sales.

Others are focusing on tenants defensive against e-commerce such as supermarkets and food-based retailers.

The preference for dining out, especially among Millennials, has driven the demand for food-and-beverage tenants.