Blog - Commercial

20 June 2017


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Strong tenant demand and stock withdrawals

Sydney’s office market continues to benefit from strong tenant demand and stock withdrawals for residential conversion and redevelopment. The vacancy rate is sitting at 5.2%, thanks in large to new A-grade offices now available down at Barangaroo. And this rate is likely to continue to tighten until 2019 when withdrawals abate and new buildings reach completion.

“If you take away the premium stock at Barangaroo, the vacancy rate is more like 2-3% in B grade stock. There’s not a lot around. However, rents are not increasing at the same rate as they were this time last year and, in sales, the yields are continuing to get stronger at around 5%,” says sales and leasing agent, Hamish Mackay.

Disruptions for retailers

While the office market is booming, retail is struggling in certain sectors due to a number of factors, including lower consumer confidence, rising household debt, compressed wages and disruption from new international players. It’s been particularly tough on the fashion industry and has forced some well-known brands into voluntary administration.

Retailers are now bracing for Amazon’s arrival and the impact that this may have on sales. The e-commerce giant’s recent purchase of 400 Whole Foods stores across the US is a strong indication of their broadening strategy. However, Australian retailers need to view this as an opportunity to be innovative and to differentiate themselves through product offering, experience, service or expertise. Already, many major retail operators are launching online sales.

Disruptions in the retail industry and changing consumer shopping habits are having spillover effects into other areas. For instance, we’re noticing a lot more retail spaces are being converted to commercial office space. This strategy is well-suited to professional offices (e.g. tax advisors, architects, accountants and creative agencies) that want the brand exposure a retail shopfront offers, without the price tag.

Increase in food traffic and sales

Landlords are also relying heavily on food to increase foot traffic and sales, causing retailers to argue over compensation for increased competition. The feud has even led fast food group, SumoSalad, to put two of its 20 companies into voluntary administration. Luke Baylis, CEO of Sumo Salad, says: “There needs to be more consideration given to their existing retailers and the cannibalisation effect of putting up to 300 per cent more competition in the same trade environment.”

At TGC, we’ve had a busy first half of the year, and we’re still seeing some fantastic opportunities for tenants and owners. So, if you’re looking for some expert advice for your commercial property give us a call on 1300 458 800.

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Date: 20 June 2017 Author: Adam Hennessy

About the author:

Adam Hennessy

Adam Hennessy has been involved in the Sydney commercial real estate industry for over 16 years and is Director of Office Services at TGC. After owning Ray White Commercial Sydney Leasing, Adam joined TGC in January 2007 with a mandate to grow TGC’s office services portfolio.

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