Wollongong is attracting increasing interest from offshore and domestic investors as it continues its transition from its historic heavy industrial roots to become the "economic and cultural heart of the Illawarra", according to a new report from Knight Frank.
Wollongong's office market will be among the main beneficiary of increased domestic and offshore investment in the South Coast destination, a new report has found.
The Knight Frank Wollongong Insight – September 2020 found infrastructure projects, including $1.4 billion in private investment in the city in recent years, along with the city supportive demographic profile and a large, highly educated workforce would attractd occupiers looking for an amenity-rich but closely located alternative to the Sydney markets.
Knight Frank Partner and Head of Illawarra Ben Mostyn said a 7.5 per cent rise in the number of businesses across all industries in the past two years was part of Wollongong's emergence as a regional hub for local businesses.
Knight Frank Wollongong Insight – At a glance:
“It’s a competitive location to set up business, being up to 33 per cent more cost-effective than the Sydney, Melbourne or Parramatta CBDs," he said.
“Office market conditions are continuing to improve, owing to the rise of the shared services sector.
Mr Mostyn said while tenants viewed Wollongong as an attractive place to do business, a lack of large, contiguous A-grade leasing options in the market had placed a cap on demand.
“Limited quality leasing options are causing rents to rise, with a select basket of buildings achieving rents in excess of $520 per square metre gross, but more broadly prime gross face rents in Wollongong are averaging between $425 and $500 per square metre," he said.
According to Knight Frank, 2020 could bring the largest addition of new supply to the Wollongong office market in a single year on record, with more than 17,000 square metres expected to be delivered.
It comes after no new supply was delivered in 2019.
Knight Frank Partner and Head of Leasing James Mulcair said Knight Frank had brokered leasing commitments for the three biggest office developments set to come online in Wollongong, including the recently completed 12,500sqm Langs Corner development, for which a record commitment of 5000sqm had been negotiated with private company, Mercer.
“We have also brokered a 6,700 square metre pre-commitment for the IMB Bank headquarters at on Burelli Street set to be completed in 2020, as well as deals for more than 5,000 square metres of space in Gateway On Keira, with the building now 80 per cent committed and currently being handed over to tenants,” he said.
Mr Mostyn said the relative value of Wollongong – and positive yield disparity between Sydney’s metro markets and Wollongong - was driving demand for quality stock from national and international property investors in both the office and industrial sectors.
“Investor demand in the Wollongong office market remains strong both from domestic and offshore, although volumes have been restricted as a result of assets being tightly held," he said
The recent sale of 45-53 Kembla Street for $58.4 million to Castlerock, also negotiated by Knight Frank, was the largest office transaction on record in Wollongong.
Following the recent sale of 45-53 Kembla Street, average yields are now estimated to range between 5.50 per cent to 6.50 per cent for upper A-grade assets, according to the Knight Frank research.
Click here to view the full report.
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