The PROPERTY DOCTORS, Sydney Australia Novak Properties

EP. 1384 The Office Autopsy: Everything you must know before buying an office!

• Mark Novak, Josh Wapshott and guests • Season 29 • Episode 1384

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Are you ready to unlock the potential of office investments? In this engaging episode, we explore everything you need to know about the often-overlooked asset class of office spaces. As the real estate market shifts, offices are proving to be an affordable and lucrative option that not only offers lower entry prices compared to residential properties but also caters to a variety of innovative use cases. We dive into exciting stories of how creativity is reshaping these spaces, turning them into thriving hubs for artists, tech startups, and more.

Join us as we analyze current market trends, interest rates, and the advantages of breaking larger offices into micro-offices to attract diverse tenants. Whether you're a seasoned investor or just starting, this episode provides valuable tips for navigating the commercial property landscape. We emphasize the necessity of having a knowledgeable team guiding your investments to maximise yields while addressing common concerns such as vacancies. 

Uncover the incredible opportunities thriving within office spaces and envision how you can leverage this asset class for impressive returns. Don't miss this chance to shift your perspective on commercial investments—tune in now to discover the hidden gems of the commercial property market! Be sure to subscribe and share your thoughts with us!

Speaker 1:

All right, this morning we're going to talk about and educate you on the asset class of offices. You're going to buy an office everything you should know, from A to Z. Stay tuned. Music I'm the ringleader, so I'm going to what do you know? Quite a bit, but I thought we'd go to the master first day. Offices yes. Commercial property investment yes. What to unpack, isn't it? Yes, very exciting. It is definitely Only a growing space.

Speaker 1:

I feel, with the current market, the way it's heading, interest rates easing, although slowly it'll really start to unlock some of these investments. For people out there looking for something a little bit different to your residential market, I would suggest it's the lowest entry price asset class in the market. It's actually cheaper than storage. You're exactly right, exactly right. It's a great entry-level market and it's it's really becoming a space where those that take it mold it the way they want it. That's what they're unlocking the true potential. And you'll find that with that small investment, we're talking up front in terms of a deposit, as opposed to, like you said, house or warehouses. Yeah, it's a fantastic um opportunity investment for people. So, guys, you're probably thinking how much. First of all, so we're on the northern beaches of sydney and you will get a house starting from probably 1.8 million. You'll probably get a storage unit, um, starting from about 200,000, $220,000 for, like, per square metre. I'll explain that in a sec. You know you've really got all different types of asset classes, but offices you'll get for as much as $150,000, $200,000, and they're actually bigger, almost double the size, a bit bigger, 50% bigger than the storage unit, and people have that money. They have that money to buy and they're a little bit. They're like oh, I don't know if I should use my super to buy that or I don't know if I should, you know, use my money to buy that. Very, very interesting. Yeah, it really is.

Speaker 1:

And I find that it's a segment in the market where office spaces generally a lot of the time those spaces can be broken up into micro offices as well, which is another thing I think we should unpack. You can't really do that with residential. No, you can't, can you? You sort of get a bit busted. But with commercial you can go chop, chop, chop, to chop, chop, chop and yeah, and you find with um, you know everyone's expectations of yields and what's a good yield, um, I find the fastest way to get there now in terms of office spaces, would probably be breaking it up. Um, because we do, or have seen a trend of your traditionally bigger offices, um, that businesses are in have come right down as they lower their overheads and realise obviously a large space of work is done online, so there's not as much as a need for a big physical space, and I think, just with how times are reducing those big overheads as well is a bit of peace of mind, for some business owners Can't sleep in an office, but what can you use an office for?

Speaker 1:

I've even had a funny one. For example, yesterday we've got a big building down 685, beautifully renovated office spaces down there. I even had a lady yesterday inquiring in regards to glass burning. So she's an artist and essentially she teach classes on how do you stain glass, how do you shape glass. So I mean, guys, I've put beauticians, you know artists, you know your general online businesses, e-commerce, so it doesn't just stay to an online. There's a lot of physical jobs and opportunities that that are open to these spaces as well, which is exciting. So I guess another angle as well. As you can work in off some offices, you can work in our area in 24 hours, so you can have overnight offices, yes, so you know security guards that are monitoring 24 77 and stuff like that, you know. So the office can operate, you know, around the clock you can. You know rock in and out. Technically you can't. Habitat there, habitat, habitat. Habitat there, which is through council, which is sleeping, which is a bed, very readable Now, um, are they hard to rent?

Speaker 1:

No, no, they're not. I don't. I don't find they're hard to rent at all. Um, I think, uh, a big thing with it, with anyone stepping into the commercial market, you've got the right agent that you're dealing with. A lot of the time what we find is, from that exchange process, um, we start putting the, the feelers out to the database in regards to tenants or potential tenants that have inquired on previous properties. So I think the idea of really having an agent that's going to, you know, do the groundwork before you've even settled on the property is probably a really big thing and has definitely helped with a lot of purchases that I've dealt with in. Just, you know, giving the settling, the nerves, so to speak, for someone jumping into, say, a commercial property for the first time, finding tenants. You know who do I manage it. I think that's a big thing and that's probably something that I've been involved in quite a bit recently. So quite important, quite interesting.

Speaker 1:

Should we pull apart one of our favorite one in dy parade? Yeah, trying to bring that up, yeah, yeah. So guys, we've got a um 99 square meter straight on um people water. You guys know um in the main drag of dy, how much traffic that gets through, how many eyes um come along on that property, along the property on pit water. Um, yeah, we've got a great team physio down on DY Parades, pittwater. They've got a big space there with multiple treatment rooms, reception, really well spaced out. So I think that's one that I would have thought there'd be a lot more interest and inquiry on, just because these spaces are perfect in order to get those yields, those traditional. It's a pretty cool space. Look at that. I think I've shared that on the screen successfully. Have I Should everyone see that. Yeah, yeah, yeah, beautiful. I think you have. Yeah, I think you have. That's good space. Yeah, it really is Really good space.

Speaker 1:

For that price tag $599 guide, you're getting almost. You can't get a studio apartment in DY for that. Well, yeah, your apartments are 60 metres squared, 50 internally. These days it's sort of priced over 700, original, so something that's renovated 99 squares, good, fit out, already existing 99 squares. If you were to buy a storage room that size, it'd be a million or 20. Yeah, times five would be close to a million, like you said. Yeah, over a million, right, so it's almost half the price of storage and you don't go and have to find five tenants, no, you've just got the one and something like this ready to go, ready for someone to move in it, and something like this ready to go, ready for someone to move in.

Speaker 1:

It's the lowest price asset class in real estate and, yeah, generally it's also the square metre. Right there for a ground floor facing the main road You're getting cheaper square metre rate than some I've seen in DY that are up on either the DY Grand um, which is a couple of levels up. So having that straight frontage I think is very valuable um, and something that, uh, you know I as an investor would price in um into the value of the property as well. So another thing as well physios, kairos, um, they're probably your a grade, any medical, they're your A grade tenants guys, because generally they roll up to a lease. They're not there for a year plus a one-year option. You know they're generally there for three by three, five by five and obviously you work your way up the ladder 10 by 10 for your general practices. So also something else that's very important for commercial yes, you get a better return in terms of a yield.

Speaker 1:

This one here I'd sort of expect. On a minimum you'd receive at least 750 800 bucks per week. Um, you know what percentage returns that. Well, if, if you're working off a sale price of 650 and you've got a tenant paying 750 per week, you're straight bang on the money at six percent. What are you borrowing money out of? Do you reckon for an asset? That is an asset class, it's like an interest rate? Yeah, you're probably around anywhere between 6.4, 6.9. How much deposit do the banks want do you reckon? Well, generally 20%. But there is get out to your brokers guys. We also have a few contacts. There's talks of a couple of new little deals that um the bank's putting together for commercial properties, specifically yep um, and that entails a, a traditional 90 deposit that you'd see on residential um and and also quite a quite competitive rates too.

Speaker 1:

If you're not good with maths, use chat gbt to do the modeling for you. I've been doing it lately, yeah. So if you're say, for instance, if you see something you want to buy, tell ChatGPT an income as in your income. Tell ChatGPT the interest rate. Tell ChatGPT if you're going to put 10% deposit in or 20% deposit in, tell ChatGPT the Strata Water Council and the rent, yeah, and then ask it to model what the repayments will be over a year or two. It works, guys. It's a, it's a freak of how it goes boom, boom, boom, boom, boom, boom, boom, boom, boom.

Speaker 1:

Um, should owners be worried about vacancy with commercial, with the office office space like this? I mean, it's probably one of the things I would consider. Like um, I mean, you, you're always going to have a trade-off, higher yields, higher income, um, there's always a trade-off. But I think if you've got a management with an office that you know has a lot of stock, similar stock deals with a lot of inquiry, there's always a lot of people out there looking for these spaces. Then again, I think it's just taking what the market's giving you and creating that space to accommodate that inquiry and I think you'd find you fill these things up fairly quickly. Should people be scared if they're buying the office asset class over any other asset class? What should the things they should be watching out for Crazy. Could you bring that up, mark?

Speaker 1:

Not sure if anyone's seen, but I've seen an article about two or three weeks ago that was actually speaking about the limited supply of offices throughout the northern beaches. So I think something to look at there is you know general economic market and you know the health of business. Yeah, it's reliant on commerce. Yeah, definitely reliant on commerce, but I think probably even more so when you break those microspaces down probably fits the bill even more because it sort of fits the mentality of the crowd at the moment. And that's where you want to position your property, because competition more people wanting to rent the space increases your rental on the property and then in turn your yield and then in turn the value because that's also quite a big way of valuing your commercial properties is off the basis of your leases. So I think that is a really important aspect point of the picture really.

Speaker 1:

So, guys, that's the asset class. That is talking about office spaces, everything in office spaces. You can always just call us, you can always just write a comment here asking us questions about offices. We're always happy to help people out there it's, and I reckon it's a very inexpensive. It is the most inexpensive asset class, um in the area, cheaper than storage, cheaper than residential, cheaper than it's the cheapest, and it actually performs very well with capital growth and with renting it out.

Speaker 1:

Thanks for joining us today. Anything else you want to say no, that's pretty much covered it. But I just think, yeah, in terms of yields, these guys days, the traditional 6%, 7% that we used to see a lot of the time, it's not as frequent out there in the market Sorry, that was my right finger. Your traditional 6%, 7% aren't as frequent anymore, guys. But I'll tell you, the last couple of deals I've been working on with these small office spaces, or you know, like one down in pitwater roads, one in forestville um, they're achieving these, these traditional yields, six, seven percent. So definitely look, look out for them. Um, there's money to be made, boom. Thanks, legend. Thank you.