Top three commercial areas to invest in Sydney

Industry experts reveal Sydney’s best commercial suburbs for maximum return and impressive prices. 

Sydney’s thriving commercial properties have enjoyed an incredibly strong decade but the impact of COVID and other changes has resulted in unusual splits in the different markets.

The industrial sector’s value and appreciation are now soaring but not so retail and offices.

So, in what area and which sector should investors purchase?

Overall office demand has stalled over the past 12 months. Picture: Getty

1. CBD and North Sydney

These priority areas are “top of the list” office places, boasting both value and substantial capital appreciation, said Nick Moloney of Raine & Horne Commercial, North Sydney.

According to the sales director and owner, those who’ve bought in this asset class and in this area have not regretted their choice, regardless of whether they’ve bought a strata unit or freehold building.

“Strata units could start at $400,000 while for freehold commercial office buildings, you’d probably be at $4 million plus,” Mr Moloney said.

“For your return, you could be looking at anything from 4%-6% return on average per annum, subject to your location.”

Knight Frank chief economist, Ben Burston, said premium CBD offices had enjoyed an 11.6% return over the past decade, but COVID had seen overall office demand stall over the past 12 months.

As a result, city offices have only seen a 3.3% return in the last year.

But Mr Burston said the CBD still featured the most expensive capital, or market, values of $20,000-$27,000 per square metre.

Premium suburbs to invest

• St Leonards
• Chatswood
• Macquarie Park
• Parramatta
• Pyrmont
• Surry Hills
• Altona

Similarly popular office markets in St Leonards, Chatswood, Macquarie Park and Parramatta also offer large, high-quality units priced between $13,000-$17,000 per square metre, according to Mr Burston.

In urban fringes including Pyrmont, Surry Hills and Altona, prices drop a little to $10,000-$15,000 per square metre, he said.

Sydney’s industrial sector is surprising even industry experts with its massive appreciation. Picture: Getty

2. Outer fringes

Increasingly popular industrial opportunities can mainly be found in Sydney’s outer suburbs, with Mr Moloney advising investors to head to these areas to enjoy skyrocketing precincts.

Premium suburbs to invest

• Brookvale
• Artarmon
• Alexandria
• Rosebery
• Parramatta

Sydney’s industrial sector was the best performing commercial asset class with the eastern suburbs of Alexandria, Rosebery and the surrounding suburbs in particular boasting “huge” capital appreciation, according to Mr Moloney.

“The industrial sector is a strong environment with strong rental growth and capital growth driving investment returns,” he said.

Continuing on the industrial theme, Mr Moloney explained that the price of a small strata unit could be as low as $500,000-$600,000.

A freehold property such as a warehouse in a business park comprising multiple units could demand an entry-level price point in the high $2 million-$3 million range, while similar properties at the top end could sell for in excess of $100 million.

Industrial returns are also jaw-dropping with Mr Burston explaining that in the past year alone, Sydney’s total return in this sector was 14.4%.

This is a sharp comparison to the retail return which dropped into negative numbers with a dismal return of -5.8% .

Small shopping strips with strong pedestrian trade still have the potential to enjoy appreciation and yield. Picture: realcommercial.com.au/for-sale

3. Specific suburbs and streets

While COVID has seen retail returns plunge,  there is still plenty of hope for first-time or Mum and Dad retail investors.

Mr Burston said the smaller retail centres, including strip shops and cafes, are performing much better than large shopping centres who are definitely feeling the pandemic’s pinch.

“The smaller retail centres and the vibrant areas with good transport connections with a good residential population close perform much better,” he said.

Premium suburbs and streets to invest

• Crows Nest
• Crown St, Surry Hills

Mr Moloney agreed and said Crows Nest and eastern suburbs on and around bustling Crown St were perfect examples of how strong pedestrian traffic could ensure retail areas thrived.

“Subsidiary areas with village-like atmospheres that have a community feel around them will usually be a high retail area,” he said.

He added that property prices for retail spaces could vary considerably, however, depending on the location.

“Properties as small as a hole-in-the-wall coffee shop, that might be about nine square metres in size, might command a price of $650,000 or $700,000, just because of its location,” he said.

“For a property like this, you’d want to see a yield of 5% plus.”