A recent sale suggests as much, with Knight Frank announcing the sale of 33 Argyle Street, Parramatta last November at an initial yield of 5.26 per cent.
Formerly the offices of the New South Wales Aboriginal Land Council – and previously know as the Ernst & Young Building – the B-grade office building is situated on approximately 2046 squares and comprises around 5247 square metres net lettable area set across nine levels.
Mark Litwin, Associate Director of Metropolitan Sales at Knight Frank Australia linked the successful sale of the property to its location.
“The property is centrally located in Parramatta’s CBD, the economic heart of Western Sydney,” he says.
“[It provides] convenient access to the abundance of Parramatta’s public transport links and amenities, including Westfield, Parramatta Square and the Parramatta Light Rail, which is due to become operational in 2023.”
Strong interest to invest
According to Knight Frank, 33 Argyle Street received strong interest from domestic and offshore private investors attracted to the Parramatta growth story.
“As one of the last remaining B-grade office buildings with repositioning potential in Parramatta, the
purchaser was attracted to the near-term rental uplift prospects from refurbishment,” says Wally Scales, Director of Metropolitan Sales at Knight Frank Australia.
Scales says the future redevelopment potential was also a key factor of the sale, with proposed changes to Parramatta LEP to rezone the site to B3 Commercial Core, increasing the floor-space ratio to 10:1.
Emilia Teo, a representative of one of the buyers, says they are pleased to have purchased the property.
“Parramatta's office market continues to see strong demand for quality office space amidst little or no vacancy,” she says. “This is bolstered by the NSW Government's continued infrastructure plans for rail and road connections that will cement Parramatta firmly as Sydney's second CBD.
“We are confident that 33 Argyle Street is well positioned to capture positive rent reversion and reposition itself as a future mixed-use development site. This is in line with our focus to deliver good investment value for our shareholders.”
Strength to strength for Western Sydney markets
Litwin says the sale of 33 Argyle Street represents the continuing strength of the Western Sydney market.
“It [also] demonstrates the classic advisory fundamentals – work in partnership with your client to develop bespoke advice to deliver the outcome.”
Scales adds that strong investment activity over the past 18 months has led to yields tightening across the prime and secondary markets.
“Average prime yields have compressed to 5.25–6.50 per cent as at July 2018, according to Knight Frank’s latest Parramatta Office Market Brief (September 2018), while the secondary market has seen yields decline to measure 6.05 per cent, taking the prime and secondary yield spread to the tightest gap on record,” he says.
“The report [also] found that the Parramatta vacancy rate was 3.2 per cent as at July 2018, well below the 10-year average of 7.3 per cent.
“With the majority of future developments in Parramatta pre-committed, it is forecast vacancy will remain tight at circa three per cent over the next 12 months.”
Despite downward pressure on yields predicted to continue, Knight Frank anticipates rental growth to be the main driver of performance over the next 12 months.