Blocks of units a thriving asset class in Sydney

THE block of unit market continues to be an active asset class across Sydney into 2021, Ray White Commercial’s Latest Between the Lines* research has stated.

“A mixture of private buyers looking to diversify their investments along with vendors looking to capitalise on the growing interest in this market segment has resulted in elevated levels of demand and favourable results,” said Ray White Commercial Western Sydney Principal Peter Vines.

“While turnover levels remain well below the highs achieved in the 2018/19 period, enquiry levels have increased as savvy buyers continue to seek out these assets during a time of continued high residential value growth.

“The rental market however has had mixed results given the stagnant population profile of Sydney due to the COVID-19 pandemic.

“This has impacted vacancy levels across some regions of Sydney, however, this is very location-sensitive and has not dampened underlying demand for ‘all in one line’ residential sales.”

“Vibrancy has continued in the block of unit markets across Sydney during 2021 with an elevated number of assets coming to the market. This year is tipped to be one of the most active,” said Ray White Commercial Metropolitan Sydney Director Samuel Hadgelias.

“While investors continue to seek out these properties due to the secure income streams during a time of low interest rates, others look to ride the wave of strong residential gains to possibly strata and on-sell individual units.

“As such, returns are likely to continue to be under downward pressure, and values achieved may continue at their strong results.

“Across Sydney, results will be location-sensitive based on residential indicators such as stock levels and population which drive occupancy and rental levels, together with capital values.”

Mr Hadgelias has also achieved recent success as he, along with Ray White Commercial Metropolitan Sydney Principal Jeff Moxham and Head of Asian Investment Services Victor Sheu, sold an entire boutique unit block under the hammer at 8 William Street in Lewisham (above).

Sydney Metropolitan (excluding CBD) block of units:

“After a more subdued start to 2020 in volumes due to the COVID-19 pandemic, we saw the block of unit market take off rapidly as interest rates fell to their all-time low and confidence started to return to the investment market,” said Ray White Commercial Western Sydney Director Joseph Assaf.

“While listings were few, demand remained heightened during this time as private buyers looked to a broader range of investments such as small commercial offerings, medical, childcare assets, and blocks of units due to their secure income stream.”

“The block of unit market however offers not only longer-term security in income but a range of attractive exit strategies including the strata and on-sale of individual units for gains, piquing interest by developer purchasers also,” said Ray White Commercial Head of Asian Investment Services Victor Sheu.

“Many transactions which occurred during the 2018 period have subsequently gone through this process with individual sales transacting in the last six months taking advantage of the current vibrant residential property market.”

“The major drawcard for the purchase of blocks of units in Sydney has been their ongoing income return or yield,” said Ray White Commercial Head of Research Vanessa Rader.

“While these returns are limited when compared to smaller commercial assets, their long-term capital value appreciation makes this an attractive investment choice for buyers.

“The range in gross yields have varied over time however have moved downward over the last couple of years with interest rate reductions.

“Ranges can sometimes be wide depending on the size and location of assets with many of these transactions occurring during public auction, creating increased competition, and can further pressure yields.

“During 2019 we saw the average yield peak at 4.76 per cent, before falling and remaining stable at approximately four per cent. This year we’ve seen this average reduce to 3.65 per cent, yet within a range between three to five per cent.”

*Ray White Commercial Between the Lines – Sydney Metro Block of Units Overview – April 2021.