Purchasing commercial office in Sydney

Hi

I have been reading this forum and thought to ask the questions I have regarding a purchase of commercial property that I have been thinking about.

We are a small company based in Western Sydney and we have been renting at serviced offices (and for about one year conventional spaces).

We have been renting since the beginning of 2010 and our rent has varied over the years starting from $1600 per month and currently sitting on about $3700 per month which includes a roughly 18 SQM corner office with a bit of view and 2 secure parking spots in a reasonably convenient metro location.

I have been thinking about purchasing an office between 100 SQM to 250 SQM where we can partition it (or use any existing partitioning) to have about 20 to 25 SQM for ourselves and then sublease the rest to one or few other companies where we provide space, internet and power.

I am looking at suburbs around Parramatta, Ryde, Macquarie Park, Epping, Eastwood or thereabouts. We need at least 2 parking spots.

My questions are, where should I start? which websites are better to look at and monitor the market? I have noticed finding shops and warehouses for sale is far easier that finding office in particular with the SQM range I am looking for.

Is it better to purchase a place that is already rented and move in later or purchase vacant and start preparing and renting? (Obviously if its already rented it will be less flexible in terms of what you can do with it)

How does the GST portion work? who pays for it, and is the advertised price usually including GST?

Can you use the same haggling tactics that you use for residential purchase or is there a new set of rules that apply to negotiation in terms of margins and what to ask for?

Whats the stamp duty %?

Finally, does anyone have experience in buying the office and subleasing it to others without having to do a full serviced office set up that they could share?

Thank you

 

@Beano may have some good advice
@Scott No Mates might chip in also

What structure were you considering buying in/for ?
Business purchase, or in your SMSF and renting from it ?

 

Sounds like a good idea in that you will get a saving in cost and have the flexibility if the company grows.
Roughly office goes for about 7% net yield possibly 9% if vacant.
So funded off say residential property could result in a 50pc saving on the net rental.
Shared office maybe 20% more especially if you haggle over the price.
GST has a nil effect as it claimable and is chargeable.
I would buy in a separate entity as you may sell the business and want to keep the property.
@Scott No Mates may be able to suggest the best site to find the space

 

I'll throw a few thoughts out there for you:

Parramatta is going gang-busters with a heap of new commercial based around the station/Parramatta Mall area. Tenants are alot of government departments to add to the existing RMS, Sydney Water, Education, justice precinct etc. Metro etc will also impact on the area, as too the airport, Northconnex - check out the Parramatta thread. In a nutshell, there'll be older space freed up as tenants move to A-grade office space. Also look around Parramatta finge eg Westmead or North Parramatta both along the Metro corridor. You might also consider Rydalmere/Silverwater which may also benefit from this as well depending upon the final route.

The only location that you highlighted which isn't bubbling along with infrastructure is Eastwood. There's a premium to be paid for the others as there's a ready supply of white collar workers as well as rail, M2/Northconnex.

Have you also considered the north-west?

Although you haven't mentioned the industry sector, warehouse buildings are pretty tight as to the users under the zoning so you need to check that you can operate from these buildings before you commit. Light industrial/high-tech may be suitable depending upon the use. They also lack large areas of office space.

Research - Colliers, CBRE, JLL, Bawdens and some others publish market research papers on these areas. Suss their websites.

Stamp duty calculator - linky

There's only two portals for commercial sales: realcommercial.com.au & commercialrealestate.com.au

@Shady also dabbles in the area (more towards North Sydney) but could throw in his 2 cents.

 

Thank you for your reply

I am keen to understand how yield works for commercial property as I have heard this a lot. If I understand correctly yield refers to the surplus after you pay interest which you can pocket or put towards principal of money is that right? how will it work if the property is vacant?

Would be great if you can elaborate on this too

So not under the company but rather in individual name? it might cause an issue in getting the loan due to the fact that I have residential property in my name and could impact my borrowing capacity.

Unless if it can be done under a brand new company with current company as guarantor but I dont know if banks will look at that or not

 

I agree.

It is worthwhile to mention we are in white collar industry and if we end up subleasing we will predominantly be looking at getting a slightly higher end office (or renovating it) due to our line of work and the kind of tenants we would want. I am not suggesting an A grade top notch google style office but reasonably clean and updated.

I am aware of Parramatta square project, I dont know when it will be ready and I dont know whether they will sell in the vicinity of SQM that we are after or whether they will be just for rent.

It might free up some of the older offices but I would imagine they will start going up in price any way and we also need to be mindful of outgoings as well as how updated the building is and therefore how much we need to spend to bring it up to our standards.

In terms of outgoings and strata fees, what should I look out for? how much margin is there usually to negotiate the sale price as well as outgoings and what not?

We are looking at capital gain on this quite seriously as we were thinking of potentially paying it off and selling it in 8 to 10 years time to gain an income.

I only mentioned Eastwood as it is convenient in relation to where we live and we thought it may not be as expensive per SQM. Residential property in Eastwood has been doing reasonably well, are you suggesting to stay away from commercial property in Eastwood?

Too far from where we live plus I feel better capital gain can be had in those locations I mentioned than North west. I am assuming you are referring to Norwest business park?

 

I dont think we will be going after a warehouse so we will be sticking to better offices in reasonably functional and well located buildings.

I will look at their websites, is there much of value in what they publish? I have found generally word of mouth and common sense to be much better than their research paper

I have looked realcommercial before, there is not a lot of offices listed but more so shops and warehouses and storage units and what not.

Is it common? is there a particular filter criteria that might show more offices in the vicinity or is it that there is just shortage of these offices and we just have to look for a very long time for it?

 

Nett Yield = Nett rent/Nett Income

You need to disregard interest & tax from the equation but still account for all other outgoings & charges as well as any recoverables.

 

There are usually some glimpses into various markets - Savills Q3 Office Report but you have to do a bit of reading. Occasionally they will release a report on a particular area eg: Parramatta Offices etc which will be more indepth.

 

You've probably seen this one, linky. No asking price, would have to shop around for comparable sales and leases. It may be slightly small for your needs but who knows?

 

What would be considered income in that equation and how can you get an accurate assessment of rent as the agents assessment would be inflated, in particular if the property is vacant?

I agree with you Parramatta and Macquarie Park and surrounding areas are all on the way up, you probably wont need to read a paper on it and most of those papers wont be worth much.

I think what we need to pay attention to is which street we are buying in, what are the zoning and potential plans for that particular building, how old is it and what are the recent repairs and potential costs as outgoings can wildly vary if for example a lift or aircon unit breaks down.

These are the kind of info we will need, how would you generally go about finding out?

Yes seen it Its one of the very few offices up for sale online. I dont know why there isnt much online for sale but obviously we will need to have one big hard look.

 

I'm a little late to this party

Cant really add much that hasn't already been said other than:-

- Rates on the Lower North Shore are around $8500/m2 plus parking (maybe $30k per space in St Leonards and $60k per space in North Sydney)

- Best of luck finding anything yielding close to 7% in my patch....strata office is somewhere between 4%-5%

- RealCommercial.com.au is the website to check, It has about 70% of the traffic compared to CommercialRealEstate.

- There's very little stock around at the moment so anything half decent gets snapped up quickly and generally by owner occupiers...Not much investor activity in the market at the moment.

 

I’m considering starting my own project since I saved up some money, and I think I’m experienced enough to start my own business. I used to work in Singapore for a while, and I just recently returned to Australia. Now, I feel a bit lost here. Things seem to change here after a long gap, and I feel like I’m new here. I currently work on my business plan to show to my investors and business partners. Also, I consider renting an office space. In Singapore, we had this service https://osdoro.com.sg/office-for-rent/ where they offered different office spaces. I wonder if we have something similar to in Australia.

 

@AlRoss0908 - Plenty of serviced office providers around eg Regus, Wework, Servcorp etc

 

Seems like a flood of offices for lease in Sydney city and city fringe south east (my search did 1,136 for lease in the CBD).

The standard hypothesis is - that increase in lease supply should translate into more stock for sale and falling prices.
But i can't see that happening. Is the office market that resilient, or maybe i need to look closer, or wait and watch.
Anybody else with thoughts on Sydney Office market?

 

Demand will be greatly influenced by the need to return to offices ie how much flexibility will be kept/provided to WFH on an ongoing basis as a structural workplace reform and analysis of its impact on WHS, productivity, mental health, profitability, getting out of lease obligations (or subletting) etc.

 

Well, the demand is not there. Indicative by the number of vacant offices For Lease.
My question is more - why aren't there more offices on the market For Sale?

 

Who owns them? Are they as fickle as other investors and get scared as soon as there's a hiccup? Just as likely that they aren't strata investments but syndicated or SMSF or larger corporates who aren't after quick gains but long term investments.

 

Hi @Davidov what is your budget for the commercial office? Do you know what the services component of your rent is? If you currently pay $3.7k/mo for ~20 sqm, if the parking is $150/park/mo ($5/park/day) and if the services are $1.4k/mo that leaves $2k/mo that you are paying for the office. If you are expecting to buy an equivalent office space on a 5-7% purchase yield (rental income/purchase price) do you expect to pay around $342-480k for your 18 sqm? Scale that up for 100-250 sqm. I've used a high number for services in case there are reception staff costs, printing, cleaning, internet, power. How's your search going? Have you decided on an area?

 

I see $342k/18 sqm is a very high /sqm rate for the areas you're looking at. Is the services component of your rent currently much higher?