In a commercial property market where offices in city centres are increasingly expensive and difficult to secure, suburban office spaces are becoming more and more appealing to commercial investors. In a recent survey, a large number of landlords, private lenders, investors, real estate agents and bankers placed suburban offices at the top of their investment shopping lists over the next 12 months, ahead of CBD office spaces.
You might be asking yourself why? And whether you should you be following this trend?
When it comes to preparing your suburban office shopping list, there are a few things you need to consider.
Future gains and increases in value
In many major cities, property prices are soaring, and capping out, reducing the chances of continued future growth. Not to mention, there is increasing competition from overseas investors, and securing a CBD based office is extremely difficult. Commercial property in suburban environments is appealing because these spaces show not only the immediate benefits of lower costs, but also opportunity for future yields. Sam Tamblyn, managing director at Urban Property Australia, says: “The record low-cap rates achieved in the respective CBD office markets have increased investor focus in the suburban office market… Investors believe non-CBD assets have better prospects for cap rate compression.”
Due to the rise in online shopping, the commercial property market has seen a strong shift away from retail spaces towards more focus on industrial and office spaces. When it comes to retail, it can be important to be centrally based in a CBD location among other retailers, however with the opportunity to conduct more business digitally, suburban office spaces make a lot more sense for a large number of businesses. In a recent UPA/Situs RERC survey, only 12% of respondents said that retail property would be their preferred investment in the next 12 months.
In major cities like Melbourne and Sydney, there is an increasing spreading out effect where smaller hubs are appearing and booming outside of city centres. In Sydney, this effect can be seen with the thriving hub of Parramatta. In Melbourne, the same thing is happening in places like Hawthorn and South Yarra. Predictions show that this effect will continue in coming years, with more and more businesses relocating outside of CBDs due to necessity and convenience of operations. Taking this into account, now is the perfect time to consider commercial investments in these satellite locations.
When it comes to your next commercial property investment, securing a commercial loan will be easier if you have taken all prospective risks and benefits into account. Non-bank and private lenders will see more value and security in suburban office spaces, as they are much less likely to lose value due to an oversaturated market. Whatever city you are located in, think outside the CBD box. Don’t miss the boat when it comes to the latest investment trend: put suburban offices at the top of your commercial property shopping list.