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Small-scale strata opening big opportunities

Small-scale strata opening big opportunities

By Ryan Ellem on Nov 20 2017

Office and industrial strata stock has become a sought-after commodity in the prolonged, low-interest rate environment.

In Sydney, where there's been a drought of small-scale owner-occupant stock - partly due to the State Government's rezoning of several urban localities - there has been pressure placed on prices for strata-titled assets.

In Mascot, LJ Hooker Commercial South Sydney convinced its developer abandon plans to lease several levels of office space in a new mixed-use tower, and instead test the market with strata-titled suites. The reception from small businesses squeezed out of the city fringe as overwhelming, buying up the offerings between $9,000 and $10,000 per square metre.

It's been a similar story in inner-Sydney's industrial market, where strata warehouse facilities are setting new records. The residential regeneration of much of the inner-city has seen a withdrawal of a large amount of warehouse stock, heightening demand for these light industrial and storage amenities.

In an era of prolonged low interest rates - the RBA last moved the cash rate in August 2016 - the appetite is strong for tenants to transition to owner-occupancy. But, across the board, there's cause for all client types to review their strata market strategies.

Head of Commercial at LJ Hooker, Mathew Tiller, said the compression of residential yields in major capital cities has seen a migration of residential property investors to office and industrial strata stock.

"Especially in Sydney, where the state economy has been in steady shape, there's been a large amount of strata activity with interest from private investors and syndicates and syndicates seeking yields in the low-interest rate environment," said Mr Tiller.

"They're competing in a very congested strata market, where many small business operators are deciding to make the leap to owner-occupancy at a serviceable price point with interest rates at record lows."
Mr Tiller said developers were enjoying a positive reception when launching strata-titled office and industrial. In the two largest markets of Sydney and Melbourne, developers have been able to construct speculatively because of the lack of new stock in proximity to infrastructure throughout the two major markets.

Joining investors and owner-occupants in the competition for industrial strata assets are many high net worth individuals who are using light industrial facilities as storage rooms for everything from vintage cars to filing cabinets, and even designing the ultimate man caves.

This trend has created a shortage of employment generating strata-titled industrial assets for industries such as automotive, printing and boutique hospitality suppliers.

Mr Tiller said: "There's also scope for landlords to re-position leased assets for divestment. LJ Hooker Commercial agents are regularly fielding inquiry from landlords wanting to know cost-effective strategies to materialise the growth in their assets. We're advising them on floor plate options for office suites which meet market demands and common improvements to industrial parks to make their assets more appealing.

"For landlords wanting to retain their assets and continue to attract quality tenants, it's worthwhile they talk to their property manager to ensure they're remaining competitive against comparable commercial and industrial leases. It's also important that they remain competitive in an environment where the option for tenants to become owner-occupants is much more attractive."

Mr Tiller said tenants were doing the sums and closely looking at purchasing instead of continuing to lease.

"For tenants coming off a five-year lease, the cash rate is currently half of what it was at the end of 2012; for those coming off a 10-year lease, the cash rate has plummeted 525 basis points, so they're approaching their next leases renewal with an entirely different perspective to their pre-GFC accommodation needs."

If you’re looking to find out the state of play in your local office and industrial strata market, contact your local LJ Hooker Commercial specialist today or visit

Media contact:

Ryan Ellem
PR & Communications Manager
M 0427 916 020

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