Just past fiscal year end, we would like to take stock of the past six months with a particular focus on the metropolitan markets of the City Fringe and South Sydney markets.
Whilst there appears to be an air of trepidation, we are finding that private groups in the metropolitan space will still transact albeit at a slower pace and with greater analysis. Volume is also down. Transactions we are involved with are based on anything from financial pressure, pre-emptive (intergenerational) and reactive estate division, development pipeline, optimism for the future, tenants who need a specific facility and placement of private wealth through conduits. We are finding more off-market activity from traditional brokerage (strategic placement of buyers and sellers) and also a greater acceptance of vendors to flexibility in deals to hit mental price hurdles.
In providing an overview of the year to date, we examined sales data in South Sydney and the City Fringe and some submarkets within to paint a picture.
It is important to note that some of the highlighted sales were not completed by TGC.
There is a lot of diversity in South Sydney and given the size of the market transactions are always occurring. There is the impetus of new institutional projects by Goodman, ESR, Logos, and Charter Hall, with strong pre-leasing, which provides further relevance to existing stock in those areas.
Freestanding stock has sold from $7,278/sqm at 64 Pemberton Street, Botany up to $8,464/sqm, on a smaller quantum, at 727 Botany Road, Rosebery for freestanding, warehouse-style, owner-occupier stock. There was another property sold at 310 Botany Road, Alexandria for $16,308/sqm of building on a $5.3m quantum (Apr-23) which is an outlier price with location or being part of a larger site being a potential explanation.
South Sydney industrial strata is an interesting one and is a good comparison point for the above. Often the quantum price is less making the product more accessible, and the product is often newer. Prices have settled above $8,000/sqm in Alexandria through to Banksmeadow. A 589sqm strata suite at 23-31 Bowden Street, Alexandria sold for $4.95m or $8,404/sqm in Feb-23 and another 139sqm suite in Banksmeadow at 41-43 Green Street recently sold for $8,992/sqm or $1.25m in Jul-23. In 24-26 Ricketty Street, unit 5 sold for $4.620m in Mar-23 compared with its last sale of $1.032m in Jan-04. A considerable demonstrable uplift but commensurate with the demand for land in South Sydney and the cannibalization of much of land for residential.
The area between Waterloo Metro (which takes in the Botany Road Planning Proposal Precinct or BRPPP – the strip from Redfern to McEvoy Street) and Green Square areas has been quite prominent this year in terms of site sales. In this area GFA rates are in the lower $2,000’s being $2,344/sqm for a small site (sub 1000sqm) on Botany Road through to $2,132/sqm for a large 10,500sqm site on O’Riordan Street, Alexandria, just off Green Square.
To take advantage of the BRPPP provisions the site has to be used as Affordable Housing, with a registered and approved provider, or employment (commercial) land. The latter has higher ‘floor space ratio’ (FSR) benefits but both have higher FSRs than if the land remained as Mixed Uses which the default zoning of most of this area is under the LEP.
City West Housing have cemented positions for affordable housing on Botany Road (in the BRPPP) and at 216-220 Wyndham Street, Alexandria. This combined with planned commercial/employment land usage will gradually see a rejuvenation of Botany Road strip as owners take advantage of increased FSR’s and develop on spec, such as Bowden and Bourke, or with tenants in hand, creating a precinct as well as critical mass for businesses and staff within walking distance of the Waterloo Metro Rail and associated commercial and residential amenity. This is in addition to further commercial development on the Waterloo Metro site and the rejuvenation of some 12ha to the east of the Waterloo Metro, of which institutional investors have been shortlisted, working with affordable housing partners.
Whilst GFA rates in the low $2,000’s have been the trend, TGC has achieved in excess of $3,000/sqm for sites in the area whereby the purchaser had a tenant in tow de-risking a potential project. In addition, TGC achieved $3,600/sqm of GFA at 28-32 Bourke Road, Alexandria last year which is more than $1,000/sqm more than has been achieved anywhere in this vicinity and was achieved by working with groups with very specific mandates.
Other South Sydney site sales include 55-99 Belmont Street, Alexandria which was sold by Aqualand for $15.2m in Feb-23. This project, sited on 1865sqm, will utilize the existing façade to create an adaptive reuse residential project of the highest quality.
There are limited examples of City Fringe freestanding property with the sale of 31 Pyrmont Street, Pyrmont for $4.4m in Jan-23 representing $18,542/sqm of 237sqm multi-level office building on 177sqm of land. This may be considered another outlier price but one might argue the heritage aspect of the property gives it an irreplaceable quality. One larger City Fringe sale was that of “The Belltower” at 2 Cornwallis Street, Eveleigh, which was sold to Mirvac for $18.25m in Apr-23. The sale represented $15,900/sqm on the 1148sqm property following a $3.6m refurbishment by the vendor. Ground, Levels 1 & 2 in 19 Brisbane Street, Surry Hills sold for $10,673/sqm or a quantum of $7.3m in Feb-23 for the 684sqm of strata plus parking in poor condition.
Given the lack of City Fringe sales we have spread to the net to the Inner West which, whilst a broad area, will also provide a point of comparison. There was more activity in the Inner West in the first half of 2023. 28-32 Mallett Street, Camperdown sold for $9.1m Jun-23. This represented $8,758/sqm for the 1,039sqm renovated building on 569sqm of land, with a 5 x 5 year lease to a Government tenant showing 6.92%. 16 Darghan Street, Glebe, a converted warehouse building of 450sqm, sold for $5m in Jun-23 which represented $11,111/sqm. 13-15 Northwood Street, Camperdown also sold for $3.53m in Jul-23. The sale represented $10,085/sqm. The property was sold with plans for a residential conversion and having inspected it, one got the feeling that 16 Darghan might get similar residential treatment.
In following that trend, where the $ per square meter rates appears on the bullish side it might be that the purchaser foresees a residential future for the property, especially in the case of character properties. In such cases it would be prudent of the agent to advertise on the residential portals as not only can the vendor be assured of maximum audience attention but one is also reaching a market that might purchase on emotion as opposed to numbers. Going back some years, 262 Liverpool Street, Darlinghurst was an amazing example of such and transformed a former First Church of Christ church into an amazing residential oasis by one of Sydney’s elite. We know of current commercial properties on the market which would fit this mould especially given the challenging nature of leasing at the moment. We are not for a moment considering the mass conversion of office buildings with vacancy into residential, simply noting that some character commercial buildings would make incredible residences.
We at TGC pride ourselves on providing solutions to owners, not simply placing an advertisement on a web portal and hoping the phone rings. The commercial metropolitan market is not without challenges but we will look at your property with pragmatic optimism to ensure your property is best placed to achieve your property goals. We will draw on decades of experience, which is imperative in the current climate, and treat your property as if it were our own.
Should you require elaboration on any element of this market update, or a confidential evaluation of your own holding in the City Fringe, South Sydney or other, please reach out to TGC.