2014-15 Commercial Market Summary

Tuesday 30 June 2015

 

2014/2015 ORANGE COMMERCIAL PROPERTY MARKET REVIEW

 

YEAR IN REVIEW

After approximately two years of weak demand across all commercial property sectors we believe financial year 2014/2015 was perhaps the turning point in the market with increased activity in some sectors, albeit continued weakness in others.

 

Sector

2014/2015 Summary

Commercial Investment Properties

Strong demand and increased activity in latter part of year

Retail Leasing

Improved demand and activity - falling vacancies

Office Leasing

Positive signs and enquiry however market remains over-supplied

Industrial Leasing

Demand remains weak with significant over-supply

 

The completion of the development of Newcrest’s Cadia East Gold Mine in 2012 and the subsequent reduction in Orange’s contract mining workforce had a significant detrimental impact on many sectors of our local property market. Demand for residential rental property subsided and a tougher retail trading environment saw increased vacancies in the CBD retail precinct.

In contrast to the previous two years, 2014/2015 saw a sharp increase in demand for retail leasing with Benchmark Commercial negotiating the lease of a number of retail premises in the CBD to new national and local retailers including, Ishka, Mary & Tex and Orange Bakehouse. There are currently only two vacant shops in the retail strip and negotiations are progressing with national retailers on both premises. Overall, it has been a positive year for retail leasing and the immediate future looks promising with Benchmark Commercial having strong enquiry from a number of other national brands looking to enter the Orange market when suitable premises become available.Whilst the office leasing market has marked time with a continued over-supply of office space the most noticeable and not unexpected impact was to the industrial leasing market with increased vacancies and downward pressure on rents. The announcement in 2014 that Electrolux would be closing its Orange plant in 2016 with the loss of some 500 jobs was an additional negative factor in the eyes of those contemplating investment in the Orange commercial property market.

The office leasing market trended sideways throughout most of the 2014/2015 year with a number of smaller leasing transactions mostly to existing businesses relocating or renewing leases. In the latter half of the year enquiry spiked with some new larger floor plate tenants canvasing opportunities in Orange. The most notable new office leasing was to Macquarie Banks subsidiary Paraway Pastoral Company who have relocated their headquarters from Sydney taking a long term lease at 70 McNamara Street. Office vacancies remain high however with some 6,500 square metres available in and around the CBD. Rental rates have declined in the order of 10% from their peaks and remain soft with landlords competing strongly for the limited tenants active in the market.

The industrial leasing market has been the most severely impacted in recent years. The last 12 months has seen a modest increase in industrial leasing, generally at weaker rental rates and substantial vacancies persist. In some cases industrial rents have fallen by as much as 15% - 20% from their peak and there is currently in excess of 36,500 square metres available for lease. The vacancy rate is likely to increase in the short to medium term with the closure of the Electrolux plant and part of One Steel‘s operations in Stephen Place. Notwithstanding the weakness in industrial leasing much of the available stock is generic in nature and there has been reasonable activity in new construction especially construction of larger purpose-built premises by owner occupiers.

Despite the fundamental shift from construction phase to operation phase at Newcrest Mining’s Cadia Valley operations and the imminent closure of Electrolux’s manufacturing plant optimism for Orange’s commercial property market remains strong. Recent marketing campaigns undertaken by Benchmark Commercial for the sale of some significant local investment properties resulted in strong enquiry from right across the eastern states. While record low interest rates have contributed, the enquiry also reflects growing recognition of the diversification of our local economy and, in particular, the increasingly important role that health services play.

Four recent commercial investment property sales reflect yields from 5.8% to 7.5%. This is a very positive and encouraging sign for commercial property owners in Orange. Investment yields are as strong as I have observed in the 17 years I have been involved in the Orange market.

Not only have yields firmed but activity is also up with Benchmark Commercial negotiating the sale of 25 commercial properties in the past 12 months.

Investors are not the only buyers active in the market again with two significant development site sales having been completed in recent months. Land at 1 Hanrahan Place (Corner Distributor Road & Leeds Parade) sold by Benchmark Commercial is currently being developed with a new Woolworths/Caltex fuel station.  After many years on the market 90 Bathurst Road (corner Glenroi Avenue) has also been sold by Benchmark and is to be developed with a 7-Eleven petrol station/convenience store.

In summary, there has been a noticeable shift in activity and sentiment in the last year and we are of the view Orange has turned the corner and demand across all sectors is slowly, but surely, improving.

 

 

 

 

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