152 Riley Street, Darlinghurst, was sold on a 5% yield. Photo: suppliedBuyers are now turning their attention to the city fringe and east Sydney markets, which are undergoing a seismic shift with pubs and bars closing and being redeveloped into residential and hotel towers.
This has occurred at Potts Point and Kings Cross, where the nightlife has changed due to the lockout laws. The area is being gentrified and the cafe society is switching the precinct into a day-time location.
According to CBRE, the city fringe yields range from 1.2 per cent, with 89 Crown Street, Darlinghurst, selling for $4.89 million, up to 5 per cent for the sale of 152 Riley Street, Darlinghurst, for $18.88 million.
This is due to buyers seeing the market as a “safe bet” in the long term.
Nicholas Heaton, head of metropolitan sales NSW at CBRE, said developers are also chasing development sites in the area where it is not uncommon to pay $450,000-$650,000 a unit site for raw development sites.
He said this is a result of the strong demand for new apartments in the area from downsizers, young professionals and investors paying $20,000 per square metre to $25,000 per sq m for apartments in the fringe.
“Developers would rather focus their attention and capital into markets like Darlinghurst where there is still a huge gap between supply and demand with very few development sites coming up,” Mr Heaton said.
Gemma Isgro, CBRE city fringe, said the last development site CBRE sold in Darlinghurst attracted local developers along with buyers from Brisbane, Melbourne and Hangzhou.
“This area has a national and global appeal due to the strong-performing end sales achieved in projects like Omnia sold by the CBRE project marketing team,” Ms Isgro said.
“Unlike greenfield development sites the majority of the development sites we are selling in the city fringe have current improvements on them that can be leased and cover holding cost during the DA process. This is very appealing to developers as it makes it easier to get finance from the banks,” Michael Khouri, CBRE city fringe, said.
The CBRE city fringe team has been appointed to sell 278 Palmer Street, Darlinghurst, which consists of two freehold buildings consisting of 840 sq m of internal area with development potential for a boutique residential project.
According to Colliers International research, while metropolitan locations can sometimes offer lifestyle upside to tenants, being close to the CBD remains an important tenant consideration due to the close proximity of business and financial services, public and private clients, suppliers, financiers and key decision makers.
“From a talent retention and attraction perspective, CBD proximity allows tenants to access a wider pool of recruits due to the central location of the business. In terms of cost management, tenants can enjoy the amenity advantages of a CBD-adjacent location at a lower rental cost,” Colliers International research says.
“From an investment perspective, there tends to be higher levels of domestic institutional and offshore investment given the dynamics of fringe markets tend to be similar in nature to the CBD and enjoy easier access to transport services.”