New research on the Wollongong property market shows the city is poised to attract more domestic and off shore investment.
Knight Frank's Wollongong Insight report for September 2020 shows infrastructure projects in Wollongong along with the city's demographic profile, highly educated workforce and population growth will be the key influences on the local property market going forward.
And that national and international property investors are increasingly attracted to Wollongong's office and industrial sectors because of their relative value and the yield disparity between the city and Sydney's metro market.
Occupiers are also seeing Wollongong as an attractive place to do business, which is leading to greater tenant demand and rental growth in the office and industrial sectors.
Knight Frank partner and head of Illawarra Ben Mostyn said the latest research was another demonstration of Wollongong's transition away from heavy industry to also becoming the economic and cultural heart of the region.
The Wollongong Insight September 2020 report revealed infrastructure projects in the city in recent years included $1.4 billion in private investment.
It showed Wollongong's CBD office market will benefit from being in such a fast-growing location which is attracting occupiers looking for an amenity rich but closely located alternative to Sydney.
"Wollongong is starting to emerge as a regional hub for local businesses, with a 7.5 per cent rise in the number of businesses across all industries in the past two years," Mr Mostyn said.
"It's a competitive location to set up business, being up to 33 per cent more cost effective than the Sydney, Melbourne or Parramatta CBDs.
"Office market conditions are continuing to improve, owing to the rise of the shared services sector with tenants seeing Wollongong as an attractive place to do business.
"However, a lack of large contiguous A-grade leasing options in the market has placed a cap on demand.
"Limited quality leasing options are causing rents to rise, with a select basket of buildings achieving rents in excess of $520 per square metre gross, but more broadly prime gross face rents in Wollongong are averaging between $425 and $500 per square metre."
Knight Frank partner and Illawarra head of leasing James Mulcairsaid while there had been no new supply in 2019, 2020 looked like it was bringing the largest addition of new supply to the Wollongong office market in a single year on record, with over 17,000 square metres expected to be delivered.
Mr Mulcair said Knight Frank had brokered leasing commitments for the three biggest office developments set to come online in Wollongong.
As the exclusive agent for the recently completed 12,500sqm Langs Corner development, Knight Frank negotiated the largest lease for the Wollongong CBD, with a record commitment of 5000sqm from a private company, Mercer.
"We have also brokered a 6,700 square metre pre-commitment for the IMB Bank headquarters on Burelli Street set to be completed in 2020, as well as deals for more than 5,000 square metres of space in Gateway On Keira, with the building now 80 per cent committed and currently being handed over to tenants," he said.
Mr Mostyn said the relative value of Wollongong, and the yield disparity between Sydney's metro markets and Wollongong, was driving demand for quality stock from national and international property investors in both the office and industrial sectors.
"With an increasing number of buyers becoming priced out of the Sydney and major metro markets, a growing number have turned their attention towards non-metro and large regional markets, attracted by the higher yields metrics on offer," he said.
"Investor demand in the Wollongong office market remains strong both from domestic and offshore, although volumes have been restricted as a result of assets being tightly held."
Mr Mostyn said the recent sale of the five-storey office building in Wollongong that houses the Australian Taxation Office for $58.4 million to Castlerock, which was negotiated by Knight Frank, was the largest office transaction on record in the city.
The Knight Frank research shows that following that sale average yields are now estimated to range between 5.50 per cent and 6.50 per cent for upper A-grade assets.
Mr Mostyn said Investor demand for industrial assets across the Wollongong region had remained strong, with the low interest rate environment, positive market fundamentals and high yield metrics on offer in comparison to Sydney.
He said that made Wollongong an attractive investment option specifically for owner occupiers and Self Managed Super Funds (SMSF).
"Due to the dynamic of the investor market and the select number of assets, the market is tightly held which has hindered investment volumes over the past year," he said.
"Investors are still principally focused on assets with long term rental security and by strong lease covenants.
Mr Mulcair said tenant migration from Sydney and increased demand from port related industries had seen a large improvement in Wollongong's industrial market, with rental growth steady.
"The regional New South Wales industrial market, in particular the Illawarra region, had experienced a period of strong growth and demand, which is heightened by the positive market fundamentals and conditions across the industrial sector as a whole that are benefiting from growth in e- commerce and the ongoing evolution of the supply-chain," he said.
"There are opportunities for investors and developers in undeveloped zoned land, with almost 300 hectares of undeveloped employment land in the Wollongong LGA, mostly around Port Kembla, Unanderra and West Dapto, of which 86% is zoned industrial.
"With Sydney industrial land prices at record levels, there is significant opportunity for the region to capitalise on attracting industrial based occupiers to the market that have been squeezed out of the Sydney market."
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