NSW MARKET OVERVIEW
NEW SOUTH WALES
Harry Sullivan - Director, Metropolitan Sales & Investments – NSW JLL - Sydney
terminal cap rates have softened significantly. This has resulted in development groups having to fund existing office projects mostly on balance sheet and look at alternative strategies for other sites in their pipeline, with the most common pivot being potential conversions to BTR, as seen with the partnership of Stockland and Novus at Stockland’s Macquarie Park masterplan. On-market transaction volumes seemed to be comparatively lower, but what did you observe in the off-market space in 2023? Off-market transactions were also comparatively low, but still provided a decent contribution to total sale volume. Throughout the year, a lot of ‘off- market’ opportunities were presented to buyers, so maintaining buyer focus was a challenge. However, seller expectations were not aligned with the market and many the off-market opportunities did not transact. The residential BTS & BTR sectors experienced the highest volume of off-market sales, as buyers for residential development sites were able to get closer to seller expectations, comparative to other sectors. Not specifically off-market, but there were several properties that didn’t transact during on-market campaigns in 2022 or Q1 of 2023, but the respective agencies continued to work the sale throughout the year and ended up transacting in late Q3 and Q4 2023. There was a significant tranche of sales in September 2023, of properties that had long expired their EOI close. Can you tell us about some of the more notable development transactions in your state in 2023? All agencies had some significant and interesting development site sales in 2023, unlocking unique strategies or setting new benchmark pricing, respectively.
Reflecting on 2023, how would you describe the year in terms of activity, buyer and vendor sentiment and what were any underlying trends that stood out? The more popular theme of 2023 was beds, sheds and meds, as capital shifted its focus to these more resilient sectors, resulting in some positive sales. Conversely, office and retail transactions were driven more by requirements, leading to drastic market re-rating. And although capital looked more favorably on the living, industrial and social infrastructure sectors, nothing was completely immune to the market challenges. Overall transaction volume was low on a historical comparison, but more importantly, there was a significant decrease in campaign activity. Q1 and Q2 of 2023 seemed to be a discovery phase, with developers, investors and funders taking a step back to recalibrate and assess their investment and return criteria. Market defining transactions then followed in Q3 and Q4, both positive and negative. Despite being down on volume, high-end/luxury residential development sites maintained their pricing. Residential developers have continued to positively underwrite projects, as cost increases can be absorbed by the end buyer. Off-the-plan sales for high-end owner occupier product remains very strong, with record pricing continuing to be set across affluent suburbs of Sydney. An excellent case study supporting this theme was the release of HELM’s development, Reverie, in Mosman, where they set record pricing for off-the-plan apartments on the lower north shore of Sydney. At the other end of the scale, office development transactions were hit the hardest in 2023, with key market challenges having too great of an impact on project feasibility. Construction costs have almost doubled, especially when factoring in new ESG requirements, incentives have ballooned to 40%+, tenant let-up/absorption is extremely slow and
HARRY SULLIVAN
22 – November / December 2023
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