Developers look to new asset class in Sydney’s CBD

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Developers look to new asset class in Sydney’s CBD

Developers and investors in Sydney’s CBD are shifting focus from residential, to mixed use office/retail and hotel developments, as these assets continue to transact strongly.

According to Colliers International, residential developments have historically provided the greatest profit and were subsequently the top choice for developers, however the changing Sydney CBD market dynamics have led to the next profitable asset class.

“As a result of the squeeze on lending, sites which would have previously attracted residential developers are now being considered for commercial or hotel development,” said Tom O’Neill, Senior Executive, Investment Services at Colliers International.

Recent examples include 275 George Street, Sydney sold by Colliers international which attracted very strong interest from a mix of hotel and residential developers, though is currently being redeveloped into office, as well as the sale of 187 Thomas Street in Haymarket.

“During the sale of 187 Thomas Street, Haymarket we witnessed a mix of commercial developers, residential developers, student accommodation providers and land bankers all competing aggressively for the site,” Mr O’Neill said.

“We are currently experiencing a huge level of interest from purchasers seeking CBD office, hotel and student accommodation sites willing to undertake new DAs or Section 4.55 applications; DA approved sites are attracting very strong interest and provide certainty to developers in a market where approvals are hard to achieve.”

“Property’s highest and best use has changed over the last few years and as a result we have recently been providing advice to a large number of CBD owners advice on best use for their properties, to help them capitalise on values.”

Hotels have also been a prominent focus for Sydney CBD developers. However, given the limited availability of undeveloped sites that are suitable for hotel redevelopment, developers have resorted to purchasing existing hotels.

Gus Moors who heads Colliers International Hotels comments “We recently sold the Park Regis for $54.18M, noting a 23% profit for owners on their 2016 purchase to a very experienced local hotel owner/operator, which demonstrates the strength and confidence of buyers in the Sydney CBD Market.”

“Sydney continues to have some of the highest occupancies for any global city and is currently achieving 87% across the city centre”.

Insight Author

Tom O'Neill
Manager
Syd CBD
M: +61 410 377 412