Speed picks up in strata

Speed picks up in strata

Carolyn Cummins

AMID expectations of another interest rate drop and a volatile sharemarket, the strata property investment sector is forecast to get a much-needed boost as buyers look for higher-yielding assets.

After a very quiet 12 months, with total sales volumes of about $100 million only, small-to-medium investors are tipped to weigh in again as borrowing costs fall.

The director of city sales at CBRE, Gavin Lloyd, says it's been a flight to quality by investors, among them redundant investment bankers seeking suites for new consultancy firms.

Mr Lloyd said that in the 350 George Street site, being developed by W Property and Abacus Funds, he has sold 17 suites off the plan, with a net return of about 7 per cent each, to former stockbrokers, returning expats and private investors.

Availability of bank finance is also thawing, albeit at a slow pace, which has enticed small-to-medium investors back to the sector.

A limited supply has also triggered a rise in demand, because owners are able to charge more sustainable rents to cover mortgages.

According to the director of consulting and research services for Knight Frank, Vanessa Rader, the Sydney central business district strata office market has endured tumultuous activity in the past 10 years, with last year yielding the most challenging results.

Sales in the past year included level 6, 16 O'Connell Street for $1.2 million; level 1, 65 York Street for $4.4 million; suite 1103, 37 Bligh Street for $560,000, and suite 804, 5 Hunter Street for $575,000. The buyers were a combination of small-to-medium private super funds and high net worth individuals.

Pending tax regulation changes for super funds and investment are also behind a return to the sector.

The shift from residential has been slow; however, momentum is expected to gather pace as funds move out of holding cash - as interest rates fall - into the higher-yielding bricks and mortar.

Ms Rader, in her new report on the Sydney CBD strata market, says that last year there was a move away from large suite sales, with the buyer profile showing an appetite for smaller sizes in the range or up to $1 million in value.

''With new supply (albeit one project) in the market, this is the impetus needed to reinvigorate Sydney's CBD strata market and bolster turnover levels and, in turn, grow capital values,'' the report says.

The Knight Frank strata office report forecasts a positive outlook for the next three years for the Sydney CBD market.

This comes from a combination of increased demand from financing and banking companies as the economy improves and rising staff numbers, along with a limited new supply of office blocks, excluding the Barangaroo project.

In turn, rents are predicted to improve, mainly from a drop in lease contract incentives during 2013 and beyond.

Ms Rader said the market had witnessed an increase in investment activity for the first quarter of the year, which showed the improved accessibility to finance.

''These positives for the broader market translate to the strata market,'' she says in the report. ''Smaller investors have acknowledged this improvement in investment fundamentals and are looking to capitalise on the current values.''

Read more: http://www.smh.com.au/business/property/speed-picks-up-in-strata-20120427-1xq2r.html#ixzz1uT6yJMpR