MARKET OBSERVATIONS - WINTER 2017

After approximately 4 months of trading as an independent,
Annuity Property Group is pleased to provide observations
as to sentiment, demand and opportunity.

The new independent role has opened the door to new opportunities
both in brokerage and as a 'trusted advisor' to various sectors of the market.

KEY OBSERVATIONS 

Overall sentiment

We have a positive outlook on the property market. This view is based on the low vacancy levels of office space in Sydney, decreasing incentives and record breaking yields that has pushed stronger investment appetite into the metropolitan areas and regional parts of the eastern seaboard. The appetite for investment stock both passive and value add, continues in all sectors with the active buyers including fledgling funds and small syndicates.

We are seeing offshore funds still chasing good product in all sectors and the sentiment is that this will continue for the second half of 2017. Vendors are capitalising on the strong market conditions by listing prime buildings for sale such as CorVal’s 9 Hunter St Sydney and Eureka’s 10 Bridge St Sydney. These  assets will be sold in one of the strongest markets on record.

Demand for data centres has also recently increased, such as the 360 Capital corporate play on the Asia Pacific Data Portfolio and the interest being sparked in the same portfolio from the tenant Next DC. The offshore buyer who paid circa $39m for the two Vocus data centres located in NSW and VIC has now settled and they will enjoy a long WALE in excess of 10 years.

Demand and expectation

Demand from new buyers of property can be categorised two ways:

1. Long term passive WALE to a quality tenant (either Commercial or Industrial) and an example of this is the Coca Cola 20 year lease back in Qld which has sold to Charter Hall for a reported price of $156m which reflects a low 5.3% yield.

2. Chasing value add, where the property is not fully leased, in need of capex or repositioning. These buyers will compromise on location, product line and size range to acquire an asset where they believe they can add value. As a result of this, the broader geographical market is offering up all styles of opportunities that may have lain dormant for years. Overall demand is stronger than ever in what is a very tightly held real estate market. A great example of this is Charter Hall’s acquisition of 2 Hume Highway Chullora, which is the ex-Fairfax printing facility comprising a 10 hectare site with partly specialised buildings. Charter Hall plan to convert these specialised printing buildings into generic logistics buildings, with the ability to add further FSR to the site.

Industrial land

Sydney’s Industrial land opportunities predominantly have been in the western M7 corridor in locations such as Eastern Creek, Huntingwood, Marsden Park and Prestons. Rental levels in  these locations are very similar, varying only by approx $5/m2 along the corridor and land has followed the same way. Marsden Park, Huntingwood and Eastern Creek/Erskine Park have reported land transactions that have occurred from $450-$550 /m2 of land area, which is the result of very strong buyer demand.

The listing of approx. 235ha of zoned Industrial land at Riverstone formerly Riverstone Meat Works will test the market with the major developers and A-REITs expected to pursue due to the lack of other opportunities in Sydney. Riverstone is now on the map due to the M2/M7 access via the very buoyant Marsden Park.

Land is in short supply and buyers have to take a long term view when acquiring at the current rates for development purposes, however most of the larger player are looking to develop and hold long term.

Where the opportunities are

Our view is that the infill suburbs along the infrastructure routes and property east of Parramatta continue to offer the best available mixed use opportunities. The main message is that real estate players need to search in a bigger pool of property from Commercial through to Industrial with perhaps some Retail along the way.

It’s a strong and vibrant market out there that will continue to offer up opportunities for the rest of 2017.

 

Copyright © 2017 Annuity Property Group Pty Ltd, All rights reserved.

Our mailing address is:
Annuity Property Group Pty Ltd
Level 28 259 George St,
Sydney, Nsw 2000
Australia

 

DISCLAIMER:  This information is of general nature only and prospective lessees or purchasers should seek further information from Annuity Property Group Pty Ltd and obtain appropriate independent expert advice.