Investors see big bucks in office blocks as Sydney land squeeze tightens

Savills’ director of residential site sales Stuart Cox said half of his buyers were looking to redevelop office blocks into apartments straight away, while the other half were land-banking for the next residential cycle, as “pre-sales have obviously slowed down”. Some were waiting for these commercial sites to be rezoned for mixed-use housing development before reselling them for a premium.

“Some are just going to hold those (assets) purely as commercial investments and down the track, possibly they’ll do a residential development,” Mr Cox said.

“(It’s) the luxury of having a commercial building that’s bringing in an income, at the same time having an exit strategy down the track which will reap more rewards for them when they sell it for residential use.

“They’ll bring it to the market in the next cycle because there will be little competition (at that stage).”

What 69 Christie Street, St Leonards, could look like if rezoned for mixed-use apartment and commercial development. Picture: Supplied

The North Sydney area’s lack of residential sites made it a hotspot for potential mixed-use redevelopments.

“There’s no other sites in North Sydney, all you’ve got to work with is the existing commercial buildings, especially up and down Alfred Street in Milsons Point. It just so happens that they’ve got amazing views of the harbour and they’re close to rail.”

Most investors using this land-banking strategy were those backed with Chinese capital as they could afford to pay tight yields, Mr Cox said.

“Sydney suburban areas are considered safe havens for Chinese investors. It’s a fail-safe way to invest money, especially for the offshore groups when there’s so much uncertainty in China,” he said.

“They know that there’s going to be demand for residential down the track, because of the unique location.”

Although zoned B3 commercial core, a seven-storey office building on the market, 69 Christie Street, St Leonards, is opposite 88 Christie Street, which was rezoned for mixed-use apartment development.

That helped trigger a $300-million sale to residential developer JQZ earlier this year, bringing in a profit of about $125 million in 12 months for the former owners Dyldam Developments.

“Based on numerous surrounding sites that have been developed, this site [69 Christie Street] could benefit from a change in planning laws to deliver a mixed-use commercial and residential development of significant scale with enviable views across Sydney’s CBD and Harbour,” Knight Frank’s Tim Holtsbaum, who is selling 69 Christie Street, said.

His co-agent Tyler Talbot added that offices along the intersecting Pacific Highway have also been rezoned “to accommodate forecasted demand for residential apartments, which have set a precedent for growth in the immediate locale”.

Past interest in 69 Christie Street has indicated price feedback of up to $70 million.

St Leonards’ office vacancy rate has climbed from 8.5 per cent to 12.6 per cent in the 12 months to July 2017, Colliers International research shows. This can be attributed to tenants trickling out of the suburb, where many secondary-grade buildings are attached with a demolition clause, ruling out long-term leases thanks to lucrative potential for residential conversion.

The trend was also prominent in areas like Redfern, Mascot, Hurstville and, in the near future, Alexandria, said LJ Hooker Commercial South Sydney’s managing director Daniel O’Brien.