An ‘island site’ in Sydney’s Surry Hills which used to be the home of Spanish restaurant El Bulli and other long-standing eateries has hit the market and is expected to be razed for a new hotel or apartments.
The block of nine retail buildings on the corner of Elizabeth and Cleveland streets could sell for more than $18 million, according to industry sources.
This brings the indicative yield to an eye-watering 0.74 per cent or lower, with the net passing income at $133,500 a year from seven tenants.
With more than 1800 square metres of floor space on a 1372-square-metre site, CBRE selling agent Gemma Isgro said it was “extremely rare that an entire block with four street frontages so close to the CBD is offered to the market”.
The site also has frontages on Goodlet and Perry streets.
The vendors, X Ler Investments, bought it for $12 million in 2015, Domain Group records show.
Ms Isgro told Commercial Real Estate that they had acquired it with a 10-year lease to El Bulli with two 10-year options, in the hope of holding it as an income-producing asset.
“They were prepared to just sit on it as a passive investment,” she said.
However, El Bulli closed suddenly about three months ago, “so it pretty much frees up the whole site in terms of its lease profile for redevelopment.”
With the biggest tenancy vacant and a weighted average lease expiry of about two years, the vendors thought it would be the right time to sell to developers.
“There’s no long leases on the property so it’s primed for redevelopment,” Ms Isgro said.
Other restaurants, including Nada Lebanese and The Prophet, have also been operating on the site for more than 30 years.
Located in a mixed-use zoning area with a building height of about five storeys, the site could be redeveloped into a hotel, student accommodation, and residential or commercial projects.
“Commercial’s really strong at the moment in Surry Hills – (net) rents have shifted over the past 18 months from $650 a square metre hitting around $850 a square metre,” Ms Isgro said.
“Because there’s been so much commercial stock withdrawn from the immediate CBD core, it’s putting pressure on the city fringe suburbs.
“All the creative-type businesses want to be around the fringe because it’s trendier and obviously that’s had a direct impact on rents.”
Wealthy land bankers who want a significant landholding close to the CBD have also shown interest in the site.
Co-agent Nicholas Heaton described it as “the best development site in Sydney at the moment”.
The apartment-design principles in the State Environment Planning Policy No 65 (SEPP 65) require developments to have natural sunlight and ventilation in all rooms, which makes developing in denser pockets of the city “challenging”.
“But when you get four sides of natural light, it’s an ideal site to develop, which means it’ll be really efficient,” Mr Heaton said.
The same agents also sold a line of seven retail buildings nearby at 598-610 Crown Street, Surry Hills, for $13 million on a 2.5 per cent yield in July.
In the same month, developer AVID Property Group scored council approval to redevelop a Surry Hills island site into a $60 million, six-storey residential and retail complex, with construction set to commence later this year.
The group purchased the Flinders Street service centre on 990 square metres for $14.8 million in late 2016 from Shell Australia.
Expressions of interest for the Elizabeth Street island site, which is also being sold by Daniel Esposito and Victor Sheu, close October 24.