Sydney’s city fringe runs hot with investors

Sydney’s city fringe runs hot with investors

Buyer appetite for commercial freeholds in Sydney’s city-fringe suburbs is growing, with properties selling for sub-4.0 percent returns.

We have observed consistent yield compression in precincts such as Surry Hills, Ultimo and Haymarket throughout the past 18 months, transacting some assets on yields as sharp as 3.02 percent.

We have recently experienced several buyers withdraw from the residential development market who are now looking for income-producing commercial assets in well-located areas.

The city fringe seems to be at the top of buyers’ lists, which is driving prices up.

Many investors consider commercial property in metropolitan suburbs on the outskirts of Sydney’s CBD to be “recession-proof”.

The negative sentiments surrounding the Royal Commission, pending election, and changes to stamp duty and negative gearing policies are certainly making buyers more selective.

Properties in the inner city that are leased to quality tenants on longer leases are selling stronger than ever off the back of a softening residential market. 

We are seeing a clear flight to quality occurring, resulting in stronger prices across the board. 

Asian investors have been extremely active, with several now identifying the benefits of acquiring freehold assets with income security and future redevelopment potential. We have witnessed a resurgence of buyers from Hong Kong, Singapore and Malaysia throughout the second half of 2018.

Property Summary

Eight properties sold on yields of less than 4.69 percent in the six months to December 31, including 111-117 Devonshire Street, Surry Hills, for $21.2 million (3.19 percent yield); and 256 Crown Street, Darlinghurst, for $13.75 million (3.02 percent yield).

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