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Commercial vendors must be prepared to transact

June 24, 2020

The North Sydney commercial property market is a tale of two tapes depending on whether a property is vacant or tenanted.

Investors are expecting higher returns and are comparing multiple asset classes, including commercial real estate, shares and business assets. 

When it comes to buying a commercial asset, an investor wants to know as much about the strength of the lessee’s business as possible. They don’t want to secure a tenanted property, and then the lessee turns around and asks for rent relief due to COVID-19. 

To this end, properties such as an office/warehouse at Unit 4/66 Whiting Street, Artarmon, which is the headquarters of high-rise access specialist Townview Australia is attracting investor interest. Townview has been servicing Sydney’s high-rise towers and other significant structures for over two decades and has won major awards from Master Painters in the Best Difficult Access and Best Restoration Project category. 

The pandemic has not impacted the servicing of the facades of significant structures, so the Whiting Street property is ticking boxes for investors as the lessee is a robust business. On the flip side, if a commercial property is housing a gym, the probability of attracting investors and a reasonable price is slimmer. That said, this situation will improve once governments allow gyms to operate at full capacity. 

Owner-occupier activity

Overall, owner-occupier activity is about 50% lower than in March before the Federal and state governments introduced trading restrictions. Yet, stock levels are about the same as three months ago. So, vendors selling vacant properties must be prepared to transact. To be fair, this advice applies to those vendors seeking the sale of a fully tenanted property too. 

Interestingly, the development of Metro railway stations at North Sydney and Artarmon are still talking points for commercial buyers. While the new stations have taken something of a backseat to more pressing economic issues over the autumn, once we return to normal trading conditions, I expect infrastructure plans for this region such as the Metro Rail will once again attract plenty of commercial buyer attention. 

Returns review

At present retail assets in North Sydney are yielding 6.0% to 7.0%. However, the combination of the recent trading restrictions and the longer-term effects of online shopping is impacting demand for retail space. 

Office property is yielding 4.5% to 5.0%, which is down from March because of social distancing restrictions. With the continued easing of restrictions, returns from office space should improve, as will yields from those assets accommodating cafes, restaurants, and bars. 

Industrial assets are yielding 5% to 6%. These returns are likely to remain achievable in the context of property having a stable, long-term tenant.

If you are considering buying or leasing a commercial property, contact your Raine & Horne Commercial office for more information.