Record low interest rates are fuelling an increased demand in North Sydney’s commercial offerings

LOW interest rates and falling vacancy rates are combining to turn North Sydney commercial property into a red hot investment prosepct.

Low interest rates along with increasing conversions of offices to residential towers could result in a drop in vacancy rates in North Sydney.

WITH interest rates at a record low plus climbing prices and limited stock in the residential market, commercial property around North Sydney is seeing a spike in interest from buyers seeking a safe long-term investment, with predictions that vacancy rates could soon drop to the lowest level in 15 years.

According to The Spring 2016 issue of Raine & Horne Commercial Insights, the vacancy rate for North Sydney’s commercial market is currently 7.8 per cent.

However, with more and more commercial buildings being converted into residential offerings — a phenomenon likely to continue as the market strengthens — vacancy rates could drop to 5 per cent, which would be the lowest level since 2001, Nick Moloney of Raine & Horne Commercial North Sydney said.

The NSW Government’s upcoming Sydney Metro project has resulted in further removal of office space while also adding to the area’s appeal as an investment destination, which could put further upwards pressure on rents and ensure strong returns for investors.

Indeed, over the six months to July 2016, 28,265sq m of office space has been withdrawn from North Sydney, 80 per of which has been permanently withdrawn, Knight Frank statistics indicate.

More than 80,000sq m of stock has been earmarked for permanent withdrawal from the market from 2016 to 2019.

“Today’s low interest rates make now the ideal time to review commercial portfolios and add new assets,” Angus Raine, executive chairman of Raine & Horne Commercial said.

“Small business owners are well-placed to take advantage of the current favourable market to step into their own premises, or upgrade business premises, and strengthen their enterprise’s asset base.

CBRE’s Aaron McLean noted that net yields for commercial investors are now in many cases trumping that of residential offerings in the area.

The recent sale of two adjacent terraces on the fringe of North Sydney’s CBD at 133-135 Blues Point Rd, McMahons Point, to a private investor for $6.2 million is one example, he said.

“Commercial investments have definitely become more desirable in the current market, with interest rates at an all-time low and net yields being achieved at 4.65 per cent,” Mr McLean said. “(Conversely), residential across the north shore is offering a gross yield of approximately 3 per cent to 3.5 per cent.

“It is not just local investors that have identified value in north shore commercial real estate; we have been in undated with astute investors from interstate and internationally.”