Cheaper than houses: Sydney strata offices a steal
The cheapest 10% of houses in Sydney were valued at just over $600,000 each in the year to June. In other words, even the lowest-priced houses in the greater Sydney metropolitan area — from the eastern suburbs to Penrith — are expensive compared with other assets.
In the heart of the Sydney CBD, more than 80 offices sold for less than those 10% of Sydney’s cheapest houses.
Of these strata unit offices, the prices ranged from $87,000 to $604,000, and averaged $380,363.
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The cheapest office sales were in the business centre of Sydney — Macquarie St, King St and Sussex Street. Five of the 10 cheapest sales came from 368 Sussex Street, a 10-storey building established in 1973. The building is just minutes from Town Hall Station, World Square and a number of restaurants.
The lowest sale value was a room in 229 Macquarie St. At just 26sqm, the property sold for $87,000 in July last year.
Sydney’s strata office market has seen some cheap sales over the last 12 months.
Small commercial spaces are relatively low in value for several reasons. Firstly, investors in commercial property are highly dependent on rental yield, rather than capital growth — and the initial price reflects these expectations. Whereas the lowest tenth percentile of Sydney houses saw capital growth of 11.4% in the year to May, capital growth in commercial properties is typically more subdued.
High returns from residential properties have seen a rash of commercial property valued on its potential to be converted into houses or units, but these strata spaces can’t be rezoned.
The cheap office units sold over the year in the Sydney CBD are in high-rise commercial buildings, with an average floor area of 47sqm. The minimum floor space for one bedroom apartments in NSW is 50sqm.
Assuming demand for offices in the Sydney CBD is driven by strong economic performance, such purchases could present good investment opportunities
The value of these properties is also limited because they are strata. In comparison, the cheapest non-strata office property was $4 million. The sale was a 220sqm building on a 76sqm site at 66 Druitt St in the CBD.
Finally, the prospects for growth in values, particularly for small spaces such as these, are potentially disrupted by increasingly remote workforces. The economies of scale that come from accommodating a workforce in one physical space is reduced the smaller the company, and the smaller the office space. Emerging small businesses and start-ups may instead find communal office spaces more attractive, where workers can rent by the desk, by the day, and not have to commit to long-term leases.
So are these offices a good investment? Given the small size, the per-square-metre price was not cheap. However, like any investment, it is about paying the right price for the right return. Some of these low-value office spaces have good rents.
The highest rental yield associated with a transaction over the year was 6.7% on a 51sqm unit sold for $475,000 in Pitt St. Depending on the terms of the loan for the property, such an investment is likely to be positively geared.
Assuming demand for offices in the Sydney CBD is driven by strong economic performance, such purchases could present good investment opportunities.
Eliza Owen is commercial research analyst at CoreLogic.
This article originally appeared on www.theaustralian.com.au/property.
