Biggest casualty from WFH trend

A recent study by Ray White suggests that the longing to maintain remote work arrangements after the pandemic might be negatively impacting the sales of commercial properties in the western region of Sydney.

The report for the end of the fiscal year, specifically for 2022/23, indicates that the quantity of office area accessible in western Sydney decreased by 47.45 percent compared to the previous fiscal year.

Although this amounted to approximately $660 million in sales transactions, it is still one-third lower than the average annual amount recorded over the past decade.

The study revealed that there was a significant increase of 53.56 per cent in sales of commercial space, amounting to approximately $1 billion.

Nevertheless, the study highlights that the retail real estate sector has consistently encountered fluctuations.

According to Pete Vines, the managing director of commercial properties in western Sydney at Ray White, the report contains positive and negative updates.

"There is currently a significant amount of activity occurring globally, with diverse influences affecting different types of properties," stated Mr. Vines, recognizing that Covid-19 has had a substantial effect on Sydney's commercial real estate sector, particularly in relation to office spaces.

A costly office space may not be suitable for individuals working remotely.

Companies are currently trying to determine whether employees will return to the physical workplace on a regular basis or perhaps only for a couple of days every week.

As the rates of interest increase, individuals desire a higher yield on their finances ... thus, the prices of commercial office spaces have experienced a decline.

Currently, the number of potential buyers is limited due to our lack of knowledge regarding the movement of interest rates. It takes a courageous individual to embark on purchasing a substantial office investment.

It's quite different from the first part of 2017 when statistics from the Property Council indicated that Parramatta had no available A-grade office spaces.

The retail sector is facing its own set of challenges following the pandemic.

"Retail is an interesting industry," stated Mr. Vines. "The food and drink sector and the service segment of retail are still performing decently."

In the realm of style and technology, there is an ongoing transition moving away from physical stores towards the digital sphere.

This has diminished the necessity for individuals to possess brick-and-mortar shops ... a mere presence on the internet suffices, and the level of rivalry has surged.

"Rising prices will continue to have an impact on the retail sector as consumers become more cautious with their spending."

Ray White's analysis indicates that the industrial sector is the sole category of commercial real estate flourishing in western Sydney.

"Covid-19 has greatly boosted its success," Mr. Vines stated. "The retail industry has transitioned towards utilizing warehouses, which must be easily reachable. Many individuals have commenced home-based businesses while still requiring warehouse facilities."

In the conventional sense, industrial facilities are typically situated on expansive plots of land in proximity to transportation hubs and major roads. However, the availability of land and inventory is noticeably restricted. As a consequence, this situation has exerted considerable strain on rental prices, leading to instances where they have nearly experienced a twofold increase.

According to data released by Colliers in April, the industrial vacancy rate in the western suburbs of Sydney during the first three months of the year was a mere 0.2 percent.

According to a study conducted by Western Sydney University on the 2016 census, over 300,000 individuals were commuting from the Western Sydney region to their workplaces each day. Out of this significant number, approximately 25% were professionals who likely hold office jobs.

In the meantime, the Property Council forecasts that the populace of western Sydney will increase to approximately three million individuals by 2036, establishing it as the third largest economy in the country.

Moving forward, Mr Vines foresees ongoing difficulties with all categories of real estate.

According to him, commercial offices will pose a challenge, as there is expected to be a considerable amount of empty spaces. Additionally, if the economy is not thriving, the establishment of new businesses will be limited.

There is a significant influx of people moving into the country and an inherent need for accommodation, but unfortunately, we are unable to match the pace, leading to ongoing challenges in the housing sector.

I believe the industrial sector will stay robust... Yet, it's uncertain if there will be a continuation of the rent surges observed in recent months because when consumer finances become tighter, their expenditure decreases.

"The rule may have its occasional deviations, but in general, land in the western region of Sydney will remain difficult to deal with due to prevailing high construction expenses."