Special: 2008 Central Coast Commercial Property Market Review

The past 12 months have seen dramatic changes not only in the commercial property markets locally, but also in the distribution of sales and leases across the various sub-sectors. A multitude of factors including the more obvious global economic and finance markets, have all impacted on confidence and affected business profits.

Importantly, the costs of building commercial properties and the resultant effects on valuation feasibility studies has stifled new construction somewhat. Whilst general enquiry for commercial property has been thinner, agents report that the quality of the calls has typically been qualified as better and so sales and leases, particularly at the mid to top end, are still relatively strong.

Land is perhaps the biggest commodity to feel the brunt of the changes in our local economic climate, yet there are many positive examples of confidence in different parts of the Central Coast industrial land sector. This has occurred for several reasons, the main ones being costs of materials and declining prices of existing stock.

Net absorption of industrial space is markedly down on previous years right across the Central Coast, thereby presenting selling vendors with two choices. Either they hold the properties vacant in their portfolio for longer whilst they look for a capable lessee or purchaser, or dispose of the real estate by way of sale (or auction) and use the funds for opportunistic reinvestment or debt relief. The point is that holding and opportunity costs with vacant stock motivates vendors to take a low price and get their money sooner. Purchasers understand this opportunistic market too.

Coupled with this ‘buyer’s market’ for established buildings is the massive increases in the costs of construction materials that has occurred over the past 12 months. In steel prices we have witnessed hikes of 12-15% almost quarterly leading to an effective doubling in price, and concrete has been close behind in terms of cost increases. These two main components of industrial (and commercial/retail) construction are too expensive for finance valuation feasibilities to work in a falling market, so construction approvals are choked even when a developer wishes to proceed with confidence in a product.

Somersby Central Estate
One large land sale that deserves mention is the Somersby Central Estate which has been purchased by Hunter Land.
Parcels available in this quality industrial estate range from 2502m² to possible amalgamated areas in excess of 4 hectares. These parcels are priced from between $150/m² plus GST to $236/m² plus GST and provide great freeway access and good building envelopes.

Warnervale Bluetongue Brewery site
The large Bluetongue Brewery site purchased from Wyong Shire Council and several private owners at Warnervale was an exciting transaction for the Central Coast in general terms. Prices for 5000m² parcels as part of the purchase ranged from $140 to $145/m² plus GST. The plans for the proposed brewery are superb and will benefit many people on the Coast directly with employment and indirectly through the tourism aspects of the plant.

Tuggerah Business Park sales
A record price was also achieved for a parcel in Tuggerah Business Park in excess of 1 hectare. The purchaser from Sydney had an end user prepared to lease a design and construct package and paid $192.50/m² plus GST for the parcel which fronts Wyong Road and Pioneer Avenue.

Across the board, industrial land in 4(a) and 4(b) zonings is still selling for approximately $150/m² in areas such as Tuggerah, West Gosford, Warnervale and Berkeley Vale, and between $150 and $200/m² in Somersby and Tuggerah Business Park.

Typical prices for full pre-cast panel construction factory units and larger warehouses have been in the range of $900 - $1300/m² in North Wyong, $1000 - $1250/m² in Tuggerah, Berkeley Vale and Tuggerah Business Park. 2008 saw the Somersby sales fluctuating between $1000/m² and $1300/m² and West Gosford sales were similar. Some mortgagee in possession sales in different parts of the Coast have been slightly lower, however they are still approximately $900 to $1000/m² for quality stock – even with expedited contract requirements.

Leasings
Leases for the better quality industrial stock are on average $80 to $110/m² per annum net. Incentives are generally affecting the face rents only slightly, if at all, with effective rents being influenced to a greater degree by rent free periods and occasionally fit out contributions. Right across the Central Coast, lessors are being educated by the market place to take up to 3 months rent free, (for example) in preference to waiting for immediate rental payment from ‘perfect fit’ lessees. It is becoming apparent that many will opt for income at a future designated date rather than holding vacant properties for longer periods.

Commercial office market
The commercial (office) market is much more buoyant. At Erina, the Stevens Group development, High Point, has had sales averaging approx $4685/m² with leases of approx $350/m² pa net + GST.
The Rivers building on the Central Coast Highway (The Entrance Road) has seen office space leased for around $272/m² pa net + GST.

In Tuggerah there has been strong demand for office space ranging from 100m² upwards, and rates have fluctuated from between $200/m² to $220m/² pa net + GST (on average) for new stock in developments such as Tuggerah Straight Commercial Centre on the Pacific Highway and in Tuggerah Business Park.

Sales of new office space have also been relatively strong within the Tuggerah Business Park where prices have been steady at between $2500/m² plus GST through to $2850/m² + GST.

Evidence suggest that the commercial sector has been insulated from the impacts of the negativity that has affected other parts of the market in the later half of this calendar year. Many deals and future possible projects that include larger areas of commercial space are also still on the drawing board, so 2009 looks positive again for office construction and sustainable strong net absorption of space.

One example is the Centrelink Call Centre which has gone to tender for expressions of interest in Gosford or Tuggerah for approx 2750m² of office space, to be occupied or constructed in 2009.

Notable activity on the Peninsula is encouraging increased confidence through several site acquisitions and development plans. Woolworths have secured an area opposite Coles in West Street, Umina. Dan Murphys are planning to occupy the Flemings Building also in West Street, and Aldi have secured a large parcel on Trafalgar Avenue, Umina for a new store location.

Retail property market
Retail property has also been quite strong over the 2008 period within other areas on the Coast. The Carbow Arcade at 134 Mann Street, Gosford was sold early in the year, there is still high demand for main road positions in Erina and bulky goods leasing has been very strong along Tuggerah Straight. In Wyong, Aldi have secured a parcel of approx 4241m² which they are working on plans with Wyong Shire Council to create a new ‘Gateway’ site as you enter Wyong township from the North.

The Toukley location is also being viewed as an excellent investment centre by retail property standards, although many of these plans are still in the infant stages of the development process. Likewise in The Entrance and Long Jetty regions, many developers are structuring new concepts that may see changes later in 2009 and 2010.

It is a new landscape certainly. Where demand seems to have come to a screeching halt, it has really shifted quietly to other areas of the commercial property sector. As a whole the picture is far from bleak, although the catch-cry for development in 2009 is ‘de-risk’! By underpinning new construction with pre-commitments from tenants and purchasers there will flow a steady stream of new and ongoing commercial property transactions.

Best time to enter commercial property market
With respect to the supply of industrial, commercial and retail property, agents on the Central Coast report that there is an abundance of well priced, quality stock available for purchase. This provides opportunities for investors and owner occupiers to scrutinise the available properties and often purchase under favourable terms or with substantial discounts. It should be seen as possibly the best time in the past half century to enter the commercial property market with careful and diligent research.
There is a general trend emerging of sales well below new replacement cost in all of the various sub-sectors of commercial property.

Meanwhile, interest rates are now expected to fall to the lowest in forty years. If this occurs investors will return and with commercial property yields at 8-9% per annum net, for well leased properties up to $2.5 to $3 million demand will increase.
Owner occupiers may be better off borrowing and buying than leasing once again, and the established stock for sale should start evaporating.

Ty Blanch is Licensee in Charge at LJH Commercial – Central Coast. He holds a Bachelor of Business in Property Economics, is a Life Member of the Multi Million Dollar Chapter of the Captain’s Club, and has over 17 years of experience in Real Estate on the Central Coast.

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