How are business parks investments good?
Business parks are of the commercial properties that a business or an investor can choose to invest in. one of the most areas where the parks are viable are in the cities or rather the CBDs, talk of the Sydney office market.
With investors’ relentless push toward the regional office centers, the office park investment market, especially the suburban business park, presents some of the best pro-cyclical property opportunities.
Investors’ sentiment towards this office market sub-sector has led to out of town office parks to get the pricing discounts
The appreciation in the capital and rental value due to achievable pricing and occupational demand makes town office park market a wonderful sector for investors who can get attractive income returns and superior returns.
Over the next property cycle, total income returns are expected to be driven by income returns. As result, office parks will generate superior returns at discounted levels of yield compression and rental growth.
The supply is one of the factors that determine whether the business parks assets are good investment prospects. Institutional owned assets, especially those A grade stock business parks, are usually tightly held to attract strong leasing demand.
For the supply of the business parks to be tight, the demand for the business parks should also be high. The demand currently of such office parks in the major cities seems high. Many of the organizations that run offices have numerous of staff. Most of their staff own car which they use for transportation at work and when transiting from home to work. As the staff keeps rising in organizations found in various cities of Australia, the demand also escalates. Therefore, with the limited supply of such office parks, their supply gets tight. A tight supply in the business office park would mean that they will charge high parking fees to their clients and get higher returns. The current tight supply is an impetus for investors to invest in parks.
Where is the tenant demand coming from?
The market currently is broadening, and it is not like those traditionally office parks that used to attract telcos, pharmaceutical companies and IT employers.
Construction companies involved in research and development are increasing their interest. Some like-minded firms in the medical space in Australia seem to be following that pattern. This trend is making the owners of three or more business units amalgamate into a single open space. In essence, makes the groups of business units to be attracted to business office parks.
So what should investors be looking for?
The entry-level price that most investors would expect to pay is nearly $10 million in areas around the CBD. In such places, tenants like the car and public transport owners can efficiently access. Infrastructural improvements in such areas, especially the bus and rail network, is enhancing the demand for those kinds of office parks. Local planning changes, like the liberalizing commercial zoning, is also a driver to the material improvement of the parks.
As an investor in the properties market, you should examine the paces that have plates with good floor sizes as well as amenities. For instance, there could be food outlets, cafes and shopping centers nearby. Parking is crucial such that a tenant may hesitate when there is no easy access to a particular property.
What sorts of returns can investors expect?
There are prime assets that currently attract yields from7.5% to 8.25%. As demand for investment grade stock exceeds supply the yield compression phenomena will be seen in the sector. However, there are some external factors that can come in and alter the trajectory.
Despite that, commercial-grade investment fundamentals in cities like Sydney will still remain strong. In the end, a huge pool of investment money will be created by a strong flows coming from super funds coupled with Low-interest rates.
What should an investor know about business parks?
When it comes to making an investment decision on venturing into business office parks, there are some things that a prudent investor should be aware of;
- Parks that can use a holistic master-planned approach to adapt and control their environment are the ones that will turn out to be successful. They should extend their scope to landscaping, the creation of mixed-use vibrant environments, mainline transport links improvement, bus services enhancement, development or of on-site amenities development, and even creation of pedestrianized zones. While those parks that embrace progressive approach towards building design as the emphasis is put on productivity and well-being will mostly attract the best tenants.
- A strong brand is a strong occupier as well as a market dominant. Such Office park brands entail office spaces that are flexible, modern and of high quality offering high amenity value and connectivity levels. This kinds of occupiers are suitable for companies or investors who want to recruit and retain top talent.
- The relevancy and complementarity to the respective city centers will make the out of town office locations Successful. Many occupiers have large floor plate requirements and also car-borne business functions. Due to constraints in city cores and planning restrictions, many of these parks in town/city centers lack the capacity to offer the needed satisfaction.
- It is fundamental for such properties to be accessible and proximate to various multi-modal transport links is fundamental. Parks will benefit from competitive advantage when they are in close proximity to some established transport links (air, cross rail, motorway, rail, and bus)
- The competitive advantage that is not replicable will be enjoyed with those parks that are accessible and proximate to such infrastructure levels.
- Successful office parks that are successful will offer both essential amenities and attractive work environment. Successful business office parks standout as they are distinguishable from others in the marketplace.
- Out of the working population, approximately 60% commute to work using a car. The continued dominance of this travel medium implies that specific car parking provisions are a key driver of office park/out of town success. Car parking provision for new consented schemes usually ranges from 1:400 to 1:500 sq ft. Therefore, the parks that have a history of more generous provisions will continue to experience strong tenant demand.
Investment in business office parks, whether in the cities or out of town, is good as it currently attracts a lot of returns. However, the returns that will be generated will depend on the location that the parks are located.