Investing in commercial property in the outer suburbs of Melbourne and Sydney in the current market.
Some outer suburbs in Sydney and Melbourne have undergone considerable regeneration in the past few years. How should the novice investor approach looking for commercial property in these regions?
A significant number of public-sector offices in NSW are being moved to the west – around Parramatta, Penrith and Liverpool – while major new residential development in growth areas such as Oran Park, Marsden Park and Rouse Hill is expected to drive a concurrent release of commercial property for lease or sale.
Similarly, areas in the east and south-east of Melbourne, such as Dandenong and Ringwood, are seeing a lot of new development and are rapidly shaping up as a major office market.
A good place to start
Stephen Gorman, managing director of Gorman Commercial, suggests that a first-time investor in commercial real estate might consider buying into strata offices or industrial property as a starting point.
“Offices create a higher yield than retail,” Gorman says, “so it’s a more conservative and arguably safer investment.”
According to research by CBRE, Parramatta’s office market has seen limited prime availability, with vacancy at just 0.2 per cent in June 2014. Incentives are expected to drop further, effectively encouraging rental growth, and these positive rental conditions are likely to continue throughout 2015, with no significant supply due until 2016 when Parramatta Square Stage 1 is completed.
Likewise, Melbourne’s suburban office markets have seen minimal leasing activity due to a lack of stock, but incentives are expected to level out and rents should see some moderate improvement. In the industrial sector, Knight Frank research suggests the west will continue to deliver the bulk of all new supply – predictions are that the region will deliver 47 per cent of the forecast supply in 2015.
Do the research
Gorman says that while there are opportunities in the suburbs, some asset types are better than others for the first-time investor, so it’s important to get advice from your commercial real estate agent.
“You might like the idea of retail, but the good retail properties often sell on very low yields and there’s a strong, wealthy market waiting to buy them. You’re better off looking at warehouses or the strata-office market.”
He also advises the novice investor to choose carefully, as off-the-plan projects can be costly and unproven. “You don’t want to be buying something that in five years’ time will be worth 20 per cent less.”
If this is your first foray into commercial property investment, talk it through with your team of advisors before making a decision.