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San Francisco-based data centre giant Digital Realty has paid $10.1 million for a vacant lot in Erskine Park in Sydney’s outer west – breaking the land rate record for industrial sites in the area.
The deal fetched $712 a square metre, topping the previous land rate record for general industrial-zoned land in Erskine Park at $610 a square metre.
The asset nearly doubled in value in 18 months with the vendors, Zhong Family Investments Pty Ltd, buying the site for $5.4 million from GPT. That represented a land rate of $385 a square metre.
Digital Realty, which has a market capitalisation of about $32 billion, has invested extensively in the Australian market and already owns a data centre down the road from its new purchase. It is building another one next door to the existing one.
Knight Frank selling agent John Swanson told Commercial Real Estate that the new owners wanted to build a third data centre as the unbuilt one was already fully pre-committed.
“An existing client needed more (space) again, that’s why they bought this,” he said.
“They were looking for anything they can get their hands on, because it’s very, very hard for them (to secure a property) within a very close proximity to their existing facilities.”
The site has development approval for a 10,000-square-metre industrial development with four warehouse units – each about 2200 square metres – and a mezzanine area for office space.
The owners had bought it with plans to develop the industrial complex and lease it out while keeping it in their superannuation fund long-term, but chose to sell due to a change in family circumstances.
Mr Swanson received more than 90 enquiries, seven of which made offers on the property. The other prospective buyers, made up of owner-occupiers and developers, were looking to use the existing DA or modify it according to their own uses.
“So owner-occupiers wouldn’t need four industrial sheds, owner-occupiers would need that to be converted into one facility, whereas developers were quite happy to take on that DA and build what was there.”
None of the buyers were land-bankers.
“Land’s too expensive to sit on it if you’re buying it for that much, you’ve got to try and get a return out of it,” Mr Swanson said.
Compared with industrial property developers and investors, data centre operators were more likely to offer a higher price on a site they wanted.
“(They) would definitely pay a premium, they’ll blow anyone out of the water because they have to; they have very strict requirements (for sites).”
Examples of such requirements include the type of land it is built on, which must not be flood-prone as it could create problems during heavy rain, and the soil of the land, which cannot be contaminated. The site should also ideally be close to network infrastructure, such as submarine cable links.
Mr Swanson said everyone from institutional funds to owner-occupiers are looking to buy land in western Sydney, thanks largely to the lower interest rate, which remains on hold at 1.5 per cent following the Reserve Bank’s announcement on Tuesday.