Surry Hills Office Transaction Breaks Record

A four-storey office block in Surry Hills has sold for $33 million breaking Sydney's city fringe price per square metre record.

It is understood the 1,696sq m building located at 1-9 Buckingham Street, was picked up by a private Chinese investor represented by Sydney-based private equity property manager Centennial Property Group.

The building was purchased from not-for-profit RT Health Fund after holding the the site for more than 10-years.

The sale breaks the city fringe price per square metre record held by neighbouring Surry Hills office building 19 Foster Street which sold for $39.5 million in February 2019, sold at a rate of $12,500 per sq metre.

The sale price of the Buckingham Street property, also known as Eveleigh House, translates to a rate of $19,770 per sq metre, representing a 58 per cent uplift in city fringe capital value in four months.

CBRE’s Nicholas Heaton, Gemma Isgro and Nick Wheatley negotiated the sale.

“There is a huge force of private capital looking for a higher return than banks can offer, and commercial property is now the instrument of choice,” Heaton said.

“With infrastructure projects providing better amenity to tenants, Surry Hills is now demanding CBD rental rates while providing a more creative alternative to the corporate CBD image.”

The buildings major tenant is co-working space AEONA with a weighted average lease expiry of 4.5 years. It returns a net income of $1.42 million with fixed annual increases of 4 per cent.

Sydney's fringe market runs hot

According to Knight Frank’s latest Sydney city fringe office market report overall vacancy in the fringe office markets had compressed to well below the 4.1 per cent in Sydney's CBD.

The overall vacancy rate in the fringe fell to 2.8 per cent at the end of the first quarter this year.

The affordability of office rents particularly in the A and premium-grade offices has continued to push many out of the main CBD into fringe areas like Alexandria, Green Square and North Sydney.

Ultimo and Surry Hills have also both recorded large annual rental growth numbers — at 18 per cent and 21 per cent respectively — while Pyrmont’s rents sit at between $750 per sq m to $940 per sq metre.

Average yields on commercial property on the Sydney CBD fringe have fallen below 4 per cent.

This trend of tightening yields mirrors a similar pattern in Melbourne suburbs like Cremorne, Richmond, South Melbourne, Hawthorn and South Yarra.