Investors snap up $18b of assets and still counting

by admin on September 20th, 2019

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Investors are seeking out office assets at a rapid rate Photo: Dallas KilponenIt has been a very busy year for commercial property, retail, industrial and office, with more than $18 billion of assets changing hands as investors seek out higher-yielding bricks and mortar.
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According to Knight Frank’s head of institutional sales James Parry there is unprecedented demand for secondary markets.

Mr Parry, an adviser on the sale of the Edgecliff Centre in Sydney’s inner east with JLL, which was bought by the private Longhurst Group for $138 million, said he expected the demand to continue.

Colliers International also sold 333 Kent Street to a Chinese-based group Bridge Capital for $88.88 million.

“The demand for secondary markets is driven by the low cash rate at 1.5 per cent – the lowest in our history – as well as improvements in leasing fundamentals and rental growth,” Mr Parry said.

“Investors are willing to pay more as rents are going to rise. This is evidenced by the recent sale of 28 O’Connell Street for a record price of $14,896 per square metre. With the cost of debt, accelerated rental growth and lack of investment opportunities, we expect most sales over the next 12 to 24 months will continue to break records.”

He said a distinct lack of stock and improved leasing fundamentals will ensure the market remains tight. CBD assets expected to be traded over the next 12 months include 55 Clarence Street, 362 Kent Street, 66 Goulburn Street and 92 Pitt Street.

JLL’s preliminary figures for commercial property investment volumes at the third-quarter mark, although preliminary, reveal lower volumes than the record years of 2015 and 2014. It is a symptom of less product as opposed to less capital targeting Australian commercial real estate.

The firm’s preliminary figures show commercial property markets recorded $18.1 billion of sales, of properties worth more than $5 million individually, across the office, retail and industrial sectors over the first nine months of 2016. This figure is lower than the $22.4 billion of transactions finalised in the first nine months of 2015, reflecting a lowering of supply.

National investment volumes over the 2014 and 2015 calendar years were   $31 billion in 2014 and $33 billion in 2015.

JLL’s head of office investments, Australia, Rob Sewell said the lower transaction volumes this year were not a symptom of reduced interest, investor demand remained strong.

“We witnessed an unprecedented level of competition for this boutique B-grade building from domestic and international investors, resulting in 30 written offers. This sale is understood to have set a very strong pricing benchmark for the Sydney CBD.  This sale process demonstrates that investors are willing to assess a variety of asset grades to buy in the current market,” he said.

When product becomes available, JLL has recorded high levels of investor interest, while the number of bids is higher than received on comparable campaigns in 2007.

Mr Sewell said a number of key factors were contributing to investment activity levels for the final quarter of 2016 and into 2017.

These include tightening vacancy and positive effective rental growth, which provides the catalyst for the next asset creation cycle in Sydney, Melbourne and a number of suburban office markets.

“New development activity will generate fund-through opportunities for investors to gain exposure to core income-producing assets and support increased investment activity in 2017,” he said.

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Sydney CBD is an office landlord’s paradise

by admin on September 20th, 2019

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Office landlords are in clover as the market supply comes under increasing pressure which has led to double-digit rental growth in the past year.
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And as more buildings go under the wrecking ball, tenants are willing to pay over the odds for short-term space, while they look for suitable, longer term options.

According to Knight Frank’s latest research report Sydney CBD Office Market Overview: September 2016, the Sydney CBD is entering a period of unprecedented stock withdrawals, with 539,099 square metres earmarked for permanent withdrawal over the next four years.

The stock withdrawal has been triggered by the Sydney Metro construction, residential conversion and re-development. In the first half of 2016, 110,731 square metres were withdrawn from the market, more than half of which was withdrawn permanently.

Knight Frank’s head of office agency, John Preece, said the overall vacancy rate in the CBD was expected to trend down towards 3.5 per cent by the end of 2018.

“Vacancies in the secondary market are forecast to decline at a faster pace than the prime market due to stock withdrawals. This will lead to some secondary tenants moving to the prime market or out of the CBD,” Mr Preece said.

Knight Frank senior research manager, Alex Pham, said absorption is particularly strong in the prime market with an annual take-up of 192,198 square metres as at July 2016.

“This is the strongest level of absorption in the last decade and a reflection of the upgrading that is occurring and strengthening demand for prime space in the CBD,” Mr Pham said.

According to JLL, as demand for office space in Sydney’s CBD market rises and vacancy tightens, an increasing number of businesses are leasing space on short-term contracts, even in buildings set to be withdrawn and redeveloped in the medium term.

According to JLL, more than 20,000 square metres of space has been leased in the last 11 months in three CBD buildings located at 233 and 241 Castlereagh Street and 338 Pitt Street. The properties are, at this stage, set to be converted by owner Han’s Group to high-rise residential in the medium term.

At present, 27 tenants have leased space in the buildings, hailing from sectors including education, online retailing and insurance. Online retailer The Iconic leased three and a half floors in 338 Pitt Street, totalling approximately 3400 sqm. Insurance provider Allianz has leased more than 800 sqm in 233 Castlereagh Street, while a number of education providers have also leased space across the assets.

JLL’s manager of office leasing, Will Hamilton, said as vacancy continues to tighten, and there is an increase in businesses outgrowing serviced offices and co-working spaces, a number of companies are taking advantage of short-term cost-effective solutions.

“We have seen tenants utilise shorter term leases to set up new businesses and capitalise on opportunities, which would normally attract higher financials if it were not for term restriction.

“In addition, we have seen a number of groups who are in other locations securing expansion space in the CBD. This improves their access to city-based clients and opens doors to new business prospects, who might not have been able to seek out their services before, particularly for education providers.”

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Laundy Hotels snaps up Swansea pub

by admin on September 20th, 2019

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Laundy Hotels has snapped up the Swansea pub for around $13 million. Photo: Troy SinclairThe Swansea Hotel in NSW’s Lake Macquarie region has sold for around $13 million to the Laundy hotel group. The CBRE Hotels team of Daniel Dragicevich and Ben McDonald sold the property off market to Laundy Hotels, which counts   venues such as the Watsons Bay Hotel and the Woolwich Pier Hotel among its stable. The Swansea Hotel is at the gateway to Lake Macquarie and on a 3235-square-metre site.
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Daniel Dragicevich, national director, CBRE Hotels, said there had been a noticeable increase in investment recently in assets outside Sydney by traditionally metro buyers and the high- profile Laundy hotel group has been among those leading the charge. “We have sold seven NSW regional and coastal assets worth nearly $50 million this year alone as appetite continues unabated for these opportunities,” said Mr McDonald, manager CBRE Hotels.

Novotel expands

Challenger Investment Partners, on behalf of the owners, has appointed AccorHotels to manage its Surfers Paradise hotel, which is now operating as Hotel Grand Chancellor. AccorHotels will take over management of the hotel from Saturday, October 1, and re-brand the hotel to the group’s Novotel brand. Novotel Surfers Paradise will be the 30th Novotel in Australia and AccorHotels’ fourth hotel on the Gold Coast, joining Sofitel Gold Coast Broadbeach, The Sebel Coolangatta and Mercure Resort Gold Coast. It comes at a time of unprecedented growth in the Gold Coast tourism market in the lead-up to the  2018 Commonwealth Games

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Vendors opting for sales in one lot

by admin on September 20th, 2019

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48A Oxford Street, Epping, Photo: suppliedDemand is growing rapidly across the country for development sites being sold in one lot as residents can reap a higher return and the buyer gets a property without any strata issues.
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One of the latest is a development site at 48A Oxford Street, Epping, which has a value of about $17 million.

The 1603 square-metre property comprises 14 apartments with the strata owners selling in one line.

This has become a trend across Sydney and was boosted last year by a sale in St Leonards that reaped the vendors an average $9 million apiece.

Developers are also willing to bid high for these properties as they compete with other users such as suburban office developers and now industrial property investors.

Knight Frank’s associate director, Asian Markets, Linda Zhu, senior director, head of Asian Markets, Dominic Ong, and director, commercial sales, Brett Burridge, are managing the sale of the Epping property.

Ms Zhu said it has good holding income in a prime location.

The property comprises two full brick and concrete buildings sharing a basement level. The residential accommodation spans three levels, with private balconies and courtyards. The property is zoned as B2 Local Centre under Hornsby LEP 2013 with height control of 48 metres.

As evidence of the demand, CBRE head of metropolitan investment sales NSW, Nicholas Heaton, recently sold a range of properties in Coogee, St Ives and Darlinghurst for $50 million in five days. He said some were sold in one lot as the residents banded together rather than try independently.

A group of strata owners in a 19-level Melbourne city office building have banded together to put their tower on the market with expectations around $50 million.

Thirteen owners have joined forces to sell the block at 50 Franklin Street, built in 1965.

Its sale will mark a peak in a trend which has seen multiple property owners across Melbourne’s suburbs joining forces to take advantage of a heated property market in which developers are willing to pay a premium for larger combined sites.

In another recent example, 19 owners of a 1940s apartment complex at 596 St Kilda Road banded together to sell their low-lying block to a Singaporean developer for $25 million.

The combined deal netted the owners considerably more than they would have gained selling individually.

In June this year eight property owners in Bay Road, Cheltenham, banded together to sell their houses.

Separately, the properties at 375-389 Bay Road could be worth up to $800,000 each, but together, pitched at developers, the 4715 square metres will command a premium, expected to fetch up to $9 million.

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Central south-west, Sydney’s forgotten industrial precinct

by admin on September 20th, 2019

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191 Miller Street, Chester Hill, sits on a huge 65,430 sq m and offers three separate buildings on site. Photo: Airphoto AustraliaThe conversion of industrial land to residential and commercial has led investors to scour regions in Sydney’s central south-west to gain a foothold on land suitable for the fast-expanding logistics and warehouse sector.
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To take advantage of the demand, a new site has been bought to market at 191 Miller Street, Chester Hill, which sits on 65,430 square metres with three buildings. No price was disclosed, but similar assets have been sold for upwards of $26.5 million.

Ray White Commercial NSW is advising on the property through director Michael Ajaka, NSW managing director and partner, Jeff Moxham and Stephen Moses.

Demand for large distribution centres is rising, with groups ranging from online retailers, such as Amazon, to third-party logistics, such as DHL, to the supermarkets of Woolworths and Coles, among others.

Given the vast distances between towns and cities in Australia, warehouses are needed in more areas than in a small country such as Britain, to ensure goods arrive within the promised 24 hours.

As a result, investors are looking at sites near transport and Sydney’s west is the prime target.

“We have not seen such a massive landholding come to market in recent times, boasting a 144.7-metre frontage. The property also offers a strong tenant profile returning about $1.899 million in gross passing income and weighted average lease expiry of 4.89 years,” Mr Ajaka said.

“The property is a mix of older style and more modern industrial buildings with office facilities. It also offers easy truck and container access with high-clearance buildings, truck weighbridge, hardstand areas, container storage and an industrial waste recycling facility.”

Industrial vacancies have been contracting across Sydney, which has stimulated increases in investment demand; however the more established central south-west region is often forgotten, according to Ray White Commercial research.

Head of research Vanessa Rader says the market extending from Enfield to Moorebank, taking into account regions such as Milperra, Villawood and Chullora in recent years, has been contracting due to competition from other uses such as retail and residential, resulting in increases in land value but dampening sales turnover levels.

“These markets contain a high volume of older-style stock, which has witnessed improved tenant demand increasing average face rents by 3.52 per cent over the last year.  This location is home to manufacturing, fabrication and wholesale-type uses which generate strong local employment.”

Ms Rader said larger institutionally owned distribution facilities continue to favour the outer west and outer south-west regions due to their affordable, larger land parcels allowing for purpose built-facilities along the major motorways.

Mr Moxham said local investors have continued the trend of looking towards commercial and industrial assets to diversify investments during  this time of low residential yields, volatility surrounding the sharemarket and affordable finance.

“The outer industrial regions have been highly sought after by institutional players, lowering yields to now average 6.25 per cent to 6.75 per cent, keeping smaller local buyers out.

” Attention has now been drawn to these more established locations offering a more affordable yield combined with longer term potential,” Mr Moxham said.

Brad Lord, director of asset services from Ray White Commercial NSW’s newly opened Parramatta office, also said markets such as the central south-west still show some signs of affordability for tenants and  investors, with good access to heavy rail nodes and passenger rail as well as the M5 and M4 motorways.

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