Lights On, Nobody Home: Sydney’s Vacant Commercial Property

Commercial property investors have a lot to boast about to their residential counterparts. They enjoy a higher return on investment, a more consistent cash flow with generally longer leases, and they don’t empty their pockets for rates and outgoings.

However, commercial property owners fear one thing over all else; vacancy.

Unlike residential properties, which can attract tenants in a relatively short timeframe, commercial properties can take months to fill. And whether it be an office, retail or industrial space, extended periods of vacancy can severely damage returns.

Below we review Sydney’s vacancy rates, and outline how owners of commercial real estate can safeguard their properties against vacancy.

Commercial Property Vacancy Rates in Australia

As of July, 2016, Australia’s national office vacancy rate sits at 10.4% in the capital cities.

There’s good news for commercial property owners in Sydney, however, with a vacancy rate roughly half the national average, at 5.6%. The general consensus is that commercial space in Sydney remains a hot-ticket item, particularly in the CBD and surrounds.

However, there’s also good news for commercial property owners beyond the CBD. The Property Council of Australia Office Market Report found that even despite negative demand, non-CBD vacancy rates were also falling.

These figures reflect the booming popularity of converted office spaces in Sydney city fringe suburbs like Surry Hills, Redfern and Marrickville. Businesses, particularly in creative industries, are flocking to the open-plan campus style environments that industrial properties offer.

The Vacancy Threat Remains for Commercial Landlords

Despite these promising statistics for Sydney’s commercial property owners, the sting of vacant periods remains their biggest threat to profit.

Investors are drawn to retail, office and industrial properties with the promise of higher overall returns, longer leases and consistent cash flow. However, as is the general rule of thumb in any investment, higher potential return carries higher risk.

Profitable tenants can live and die by the volatile economic market. This simple reality is reflected by falling demand for commercial real estate when times are tough for small to medium businesses in Australia.

Further, commercial property supply markets can threaten stable tenancies. When commercial properties are vacated, others looking to upgrade their premises can jump ship.

So the agenda of the property owner, and the agent, becomes to safeguard the property against vacancy periods as best they can. If a property does become vacant, strategic agents can minimise the length of vacancy through modern listing techniques, knowledge of the local market and a roll-up-the-sleeves attitude.

Help! My Commercial Property is Vacant, What Now?

There are a number of immediate steps property owners can take when their rental income halts. Maintaining the quality and appearance of the property is a must for landlords who are serious about attracting tenants in vacant periods. A specialised commercial leasing agent should be able to provide design and upkeep recommendations based on their past successes.

Strategic leasing agents will also know the value of timing in attracting and signing commercial tenants. December, for example, is a notoriously difficult month for signing commercial leases. If a tenant is signed in December, strategic agents will draw up a lease of 13 months, instead of 12, or 25 instead of 24 etc.

The reasoning is simple; a lease that ends in January is easier to manage than one that ends in the slow month of December.

To read more about how commercial property owners can minimise vacant periods, download your copy of our free eGuide, ‘How Commercial Property Owners Can Avoid the Vacancy Plague’ below:

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