Apartment construction holds strong in Sydney

The rate of Sydney apartment constructions is still strong but is expected to ease in the next six months compared with the year to March 2014, a new report says.

A rise in unit building approvals in the past financial year, however, will ensure supply remains healthy over the next few years, according to M3Property.

Strong demand is driving supply in the inner city as well as at a number of large estates in suburban areas, particularly in the Fairfield and Liverpool areas, according to this month’s M3Property Sydney apartment market analysis.

Strong demand is driving supply in the inner city as well as at a number of large estates in suburban areas.

“The forecast construction, however, is unlikely to be strong enough to result in any significant increase in vacancy rates over the short term as there appears to be pent-up demand which requires sustained improvement in construction starts before easing pressure on vacancy.”

The report forecasts that apartment rentals would also continue to increase but at a slower rate than in the past 12 months.

The level of demand is such that even as existing construction projects are completed, rents and unit prices are tipped to firm rather than recede.

“There have been mixed results in the Sydney market over recent months with median unit prices and finance stabilising, auction clearance rates falling, approvals increasing again and rents continuing to rise,” the report says.

Even as existing construction projects are completed, rents and unit prices are tipped to firm rather than recede.

“At this point in time it is difficult to determine if these results are the start of a downturn in the cycle or if the news during the lead up to the budget has combined with seasonal factors to  result in a temporary slowdown in the market.”

M3Property said that the latter was more likely, given population growth and low interest rates are expected to continue and apartment vacancies remain below historical rates.

Despite unit completions during the next year, the shortage of dwelling stock would remain a feature of the Sydney property sector, the report said.

Funds shopping hard for retail sites

Sales of Victorian retail property worth more than $2 million increased by more than a quarter in the year to June, according to commercial agents Savills Australia.

The research also shows yields in the sub-sector have been falling and could drop below 7% before the end of the year, thanks to more competition from institutional investors.

Funds increased their activity and snapped up 47% of stock as they edged towards parity with private investors.

Deals involving bulky goods properties doubled in value from $52 million to $106 million in the 12 months to June.

Shop sales firmed slightly to $261 million from $252 million.

Regional shopping centre transactions made up almost 30% of all retail activity in Victoria.

Regional shopping centre transactions made up almost 30% of all retail activity in Victoria.

“Retail market sales had been boosted by some large transactions, although just 77 properties sold, down from the previous year of 106,” says Victorian research chief Glenn Lampard.

“Sales are up on last year in dollar terms by more than a quarter and that reflects an investment market which recognises that retail property possesses sound fundamentals and presents well as a long term play,’’ he says.

Savills Retail Sales Director Pat De Maria says that if funds continue their aggressive buying, yields could fall towards 6.5% by mid-2015.

“Yields are currently in the range of 7.25 to 9% – a fall of around 25 basis points on last year – and we are going to see another 25 basis points come off before the end of the year,” De Maria says.

“We have already seen (a yield of) 7% with the sale of Bendigo Marketplace and there have been sales interstate for that sort of product, including two in New South Wales of 7%.

“So we are already leading into that sub-7% territory.’’

Yield tumbles in off-market sale

JLL’s Adelaide agents have sealed a purchase by Yin Australia of a Mawson Lakes office and warehouse for $1.8 million, with a healthy yield of just 5.5%.

The 1350sqm building at 8-10 Hudson Rd is leased to Tru Blu Beverages on a two-year term.

The property includes secured loading facilities, a concrete tilt-slab construction, electronic gates, 20 car spaces and a two level office/showroom area.

JLL says the property is so functional it could be split into two tenancies if required.

“Given the lack of quality-leased industrial investments on the market in the sub-$2 million range, JLL approached known investors off market with the support of our client,” JLL’s David Ludlow says.

“The exceptional yield achieved highlights the success of the approach.”

Masterchef’s prime offering

Masterchef’s George Calombaris will put the inner-Melbourne building housing his Hellenic Republic restaurant under the hammer this month in a sale and leaseback transaction.

Read more: Sale & leaseback: what is it & how does it work

The premises at 434 Lygon St, East Brunswick, is leased for $120,000 a year.

The deal is subject to a 10-year lease from July with a further two five-year terms.

The successful bidder at the 20 August public auction will also receive a bank guarantee of six months rental, according to joint agents Fitzroys and Killen and Thomas.

The corner, freehold, 340sqm site has rear lane way access, a 9.45m Lygon St frontage, a 37m frontage to Stewart St and is in a Commercial 1 zone.