With more workers expected to return to offices in North Sydney in 2022, yields for office space in one of NSW’s most prominent commercial precincts have dropped from 5.0 - 6.0% in the last six months to a range of 4.5-5.5%.
“Office markets are weighted heavily towards owner-occupier, with businesses owning about 65% of available office space in North Sydney,” said Nick Moloney, Sales Director at Raine & Horne Commercial North Sydney. “So, it stands to reason that return-to-work demand will impact prices.” In comparison, retail property in the city’s northern CBD generates 5.5-6.5% yields except where blue-chip tenants are in place and 4-5% for industrial assets.
Nick said, “Overall, it’s been a great start to 2022, with more business owners taking longer breaks than usual over summer to recharge their batteries.
“Owners have come back with renewed goals, and for many, this involved buying or leasing commercial spaces.” At the same time, Nick reports that investors are more prominent in the North Sydney market. He explained, “Commercial property is always a favoured asset class with investors. However, like owner-occupiers, the uncertainty created by COVID over the last two years caused some investors to hold off from buying commercial space.”
Nick also said that thankfully the predictions that many Australian businesses would fold under the weight of COVID lockdowns hadn’t necessarily played out in North Sydney.
“Some businesses did better than others,” he noted. “However, a combination of our property managers taking the time to understand our lessees and working out achievable payment solutions coupled with targeted government support such as JobKeeper, enabled more businesses to survive to enjoy better times in 2022.”
However, as we enter Q2, Nick says ongoing geopolitical issues need to be monitored closely. “There’s no doubt the cost of doing business has risen since the Russian invasion of Ukraine in February,” Nick said. “With fuel prices regularly above $2 a litre, some businesses are re-evaluating growth plans for now.”
He continued, “There are companies in logistics who are reporting that the massive spike in fuel prices is adding tens of thousands of dollars a month just because of higher petrol prices.
“While the crisis in Ukraine is causing challenges for some organisations, the positive business confidence generated by other factors such as the reopening of international borders and reduced fears about COVID are offsetting the geopolitical concerns.
According to Nick, the May Federal Election is another factor commercial markets will need to negotiate over the autumn. “Usually, Federal Elections impact business decision-making until the result is finalised.
“Yet this time around, we don’t see many issues that will impact the commercial markets. However, we will monitor any announcements that might affect small businesses between now and polling day.”