Strong interest for commercial investment properties in NSW despite lockdowns

Strong demand for commercial investment properties in New South Wales has been maintained despite lockdowns, according to Knight Frank.

Knight Frank reported almost $90 million in investment sales in the three months to the end of June 2021, with 62 per cent classified as development sites or properties with development potential.

These eight development deals totalled more than $68 million alone. Strata sales totalled more than $10 million, while the agency’s commercial property sales totalled $10.5 million.

Knight Frank Head of Investment Sales in NSW, Grant Bulpett said investment activities in the state over 2021 has been the best it has been in around two years.

“The lockdown had slowed activity as vendors were waiting to see what would happen before bringing their properties to the market, but buyer demand remained strong, particularly for development sites,” Mr Bulpett said.

“We have seen across the state that the strength of our transactions proves there is still a large quantity of active capital in the marketplace looking to acquire development sites – in particular those that have limited planning or DA risk.

“While many vendors have adopted a wait-and-see approach during lockdown, owners that have chosen to place their properties on the market during this period are reaping the rewards as large buyer numbers compete over limited supply.

“With purchasers offering favourable contract terms, now is the time for vendors, particularly with development sites, to be putting their properties on the market, to capitalise on the pent-up demand we’re currently seeing.

“We are expecting the supply versus demand dynamic to shift post lockdown as the accumulation of development sites hit the market, offering buyers more choice.”

Mr Bulpett went on to explain demand for residential development sites was strong off the back of the residential boom, and could easily continue to transact during lockdown as they did not need to be physically inspected.

“We have seen an increase in interest and activity over the past 12 to 18 months in development sites that can produce 50 to 150 housing lots – in particular those that sit in the emerging markets of North and South West Sydney,” he said.

Knight Frank’s Associate Director Investment Sales, Anthony Pirrottina said Sydney’s investment market was the strongest it had been in many years over the first half of 2021.

“Leading up to June the market was very strong, with assets across all markets trading at record prices,” Mr Pirrottina said.

“Our team experienced a 100 per cent clearance rate through the first six months of the year, with purchasers eager to secure commercial assets throughout Sydney.”

Mr Pirrottina said development sites were most popular investment type over the June quarter, and continued to be the most sought after during lockdown.

“Over the past three months we have seen a larger appetite for development sites, particularly residential, in established inner-ring locations,” he said.

“These developers had slowed down their acquisition mandates over the last 12 months due to slow pre-sales, a lack of overseas purchasers, increased lending scrutiny, and a resistance from purchasers to buy off the plan due to media coverage of sub-standard construction, but we are now starting to see signs that some of these fears have subsided.

“The heat in the development market is coming off the back of rising house prices, and developers are clearly in acquisition mode.

“During lockdown the market has entered a period of divergence, where assets which require inspections, such as office buildings, apartment blocks and retail assets, are on pause due to physical limitations due to the current restrictions, in addition to uncertainty around the security of tenants.”

Mr Pirrottina explained development sites do not require inspections, so they are “as hotly sought after as ever”.

“This has also been spurred by many owner-builders not being allowed on their sites, so they have more time to actively look for new opportunities and to secure their long-term pipeline,” he said.

Knight Frank Associate Director Investment Sales Demi Carigliano agreed the bulk of activity in the Sydney metropolitan investment market had been amongst private investors and developers buying smaller sites.

“Previously we were seeing buyers favour scale to create efficiencies, but now are seeing larger groups look to secure two to three smaller sites to spread the risk,” he said.

Mr Carigliano noted during the Sydney lockdown there had been a distinct shift away from on-market transactions to off-market transactions, purely driven by vendors opting to wait until the lockdown was over before launching sales campaigns.

“We expect an explosion in activity after the lockdown is over due to pent up demand from both buyers and sellers. We are already starting to see a backlog of properties ready to come to the market building up, and we expect that once restrictions are eased the market will be very active with these new opportunities,” he said.

“In addition, if we start to see foreign travel return, particularly from Asia, we anticipate the return of Asian investors and capital will cause values to increase across all asset classes as this sector of the market has essentially been inactive for the past 18 months.”

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