Sydney strata office capital values skyrocket

3 October, 2017 / Christian Minards

A big number of investors vying for limited space has pushed up Sydney CBD strata office capital values by 33 per cent in the past year, new data from Ray White Commercial shows.

In addition, the city’s current supply-and-withdrawal phenomenon — the introduction of new and refurbished stock as other office space is lost, mostly through demolition — has created a unique rental market that is prolonging low vacancy, according to the Between the Lines Sydney CBD Office Market Update report September 2017.

Strata office transactions worth $38.9 million were recorded in the first eight months of 2017, with the Core precinct accounting for 60.3 per cent of deals followed by the Western Corridor (17.6pc) and Midtown (14.9pc).

“Historically there has been a busier end to the year, but based on current results these sales levels are unlikely to reach the $154 million recorded last year,” Ray White Commercial Head of Research Vanessa Rader says.

This limited pool of sales for 2017 has yielded a high capital value rate of $10,127 per square metre, up 33pc over the past year compared with growth of 22.1pc the previous year.

The standout performer in 2017 has been the Core precinct, with average values of $11,711 per square metre — up 45.7pc on the previous year.

In August 2017, 43sqm at 37 Bligh Street, Sydney, pictured above, sold for $641,000 — $14,907 per square metre.

The average price paid per strata premises for 2016 and 2017 is more than $1 million compared with $844,000 in 2015.

Total office vacancies are stable at their low rate of 5.9pc although after big rental increases, the outlook is more uncertain.

“Affordability is a big issue for many tenants in the CBD faced with huge rental hikes and limited incentive, many turning to co-working spaces or the quest to purchase strata stock which has now seen an unprecedented lift in value rendering this also unaffordable to many,” Ray White Commercial (Office Sydney Leasing) director Christian Minards says.

The Sydney CBD office market continues to be firmly on the international radar as a location of interest, with investment yields moving downwards over the past five years achieving new lows for both prime and secondary stock.

Current prime yields now average 4.85pc while secondary assets now average 6.50pc within a broader range, yet the gap between the prime and secondary continues to narrow.

“Strata stock has also been highly sought after by both investors and owner-occupiers looking to shelter from the ongoing rental increases,” Ray White Commercial (Office Sydney Leasing) property analyst Nicholas Yeoh says.

“There have been few investor transactions for this market in 2017, attracting new highs in capital values with yields as low as 5.00pc.”

Search for Sydney CBD office space at Ray White Commercial (Office Sydney Leasing)