Redfern the latest fringe attraction

Goldman Sachs JBWere says in its latest report that rental growth will be the key driver for valuation growth, especially in the Sydney city centre.

"With market concerns over falling asset prices in overseas market (particularly Europe and the United States), investors should take some comfort that to date there are no signs that the Australian office sector is under the same actual or perceived pressures," the broker says.

The low vacancy rate, stable demand and rising rents in the CBD have also been positive for the suburban and fringe office markets.

The independent advisory group LandMark White's latest report says that since 2000 interest in the suburban office market has picked up, with many tenants wanting to move out of the CBD or move their back office operations. This way they can occupy new or specifically designed premises while saving on rent.

"More recently we have seen a growth in rent and a pick-up in supply catering for these movers out of the CBD; this in turn has caused an increase in investment activity, particularly by trusts and unlisted funds on a more competitive yield," the report says.

"Across the Sydney metropolitan suburban office market, we have identified just over 789,000 square metres of new supply forecast to enter the market from 115 projects. The bulk of new supply is concentrated in the fringe region, which represents 30.7 per cent of total supply.

"Given the proximity to the city, the fringe is a good option for these tenants, with current gross prime rents at $373 a square metre."

One of the fringe growth areas has been Redfern. DB Property's principal, David Brown, said that for many years Redfern's commercial property sector had lagged behind the strong price and leasing growth of other city fringe areas, but there was now a great deal of activity in the area leading to a return to growth.

Big commercial projects in Redfern include the City of Sydney Council's nearly complete $20 million upgrade of the dilapidated Redfern Oval on Elizabeth Street, while Souths Leagues Club is being refurbished by the specialist property developer Trivest and the South Sydney Rabbitohs in a $35 million deal.

The joint venturers are close to completing a leagues club with a $3 million fit-out, construction of a new football club headquarters, and 10,000 square metres of commercial space, which is to be leased.

Mr Brown, who is marketing the Hordern Warehouses at 53-59 Great Buckingham Street, said there is an accelerating trend where former industrial premises are being renovated for service-based businesses, which do not want to pay a premium for properties in Surry Hills and other fringe areas.

"With its superb access to public transport and road transport routes, as well as the airport, Redfern represents a hidden commercial gem in Sydney and the suburb for strong growth in commercial prices over the next five years," Mr Brown said.

Redfern commercial property prices have grown 12 per cent over the past year. Average leasing rates have risen to about $330 to $380 per square metre.

DB Property predicts 20 per cent growth over the next year.

Source: http://business.smh.com.au/redfern-the-latest-fringe-attraction/20080404-23rn.html