Kingsgrove industrial site tipped to fetch $15 million and turned into lucrative self-storage

Currently the property earns a net income of about $181,000 a year, meaning the initial yield would be 1.21 per cent if it sells for the asking price. Average yields for south Sydney are between 4.88 per cent and 6 per cent, depending on the grading of the asset, the latest Colliers International data shows.

But the return could shoot up to $871,000 if the future owners invest in refurbishing the warehouse – or even higher if they slice up the building into small resellable blocks, the agents say.

Most of the inquiries have been coming in from investors and developers who want to turn it into a self-storage facility, especially from those who have experience in knowing how to value-add existing buildings.

Colliers International research associate director Sass J-Baleh said Kingsgrove was becoming a magnet for buyers pushed out of the traditional industrial suburbs of Alexandria and Port Botany as a result of a severe shortage of stock, pricey rents and the issue of traffic bottlenecks.

“Kingsgrove industrial market has become an extremely attractive market for both investors and businesses – with land and rental values recording their strongest growth in over a decade,” Ms J-Baleh said.

Kingsgrove’s proximity to the Sydney metropolitan area and the CBD, major infrastructure improvements such as the Westconnex Motorway and continued rental growth were the suburb’s main drawcards, she added.

One of the tenanted warehouses on the site at Commercial Road, Kingsgrove. Photo: Supplied

Colliers International selling agent Michael Crombie said industrial properties in the south Sydney market were limited because many were being bought up by residential developers looking for land that could later be rezoned for apartments.

“What we’re finding is there’s a huge undercurrent of deals in this market and this precinct. My guess is people will blink and look up in five years’ time and think ‘wow, I should have bought more stock in south Sydney’,” Mr Crombie said.

“There is a large amount of off-market transactions occurring whereby developers are having to meet landowners’ price expectations.”

He said the Commercial Road site was suited to an owner-occupier or someone who wanted “to value-add the site in order to get a higher return.

“You’d cut up the greater building into smaller suites, and then sell off those smaller suites,” he said.

“The general rule of thumb of property is that the smaller the suite, the higher the price (and) the higher the number of users for it.”

A similar situation had played out at 2 The Crescent, Kingsgrove, which investment house Pitt Capital Partners acquired on behalf of URB Investments Limited for $15.85 million in late 2016.

The site at 2 The Crescent, Kingsgrove, set a precedent in the area for lucrative subdivision. Photo: Supplied

Instead of the original redevelopment plans, the advisers subdivided the 18,400-square-metre site into seven separate lots. Three of these were sold for more than $17 million, with the potential sell-out worth close to $35 million.

The group of private investors behind One AR Pty Ltd, the vendor of the Commercial Road site, bought the property in 2014 for $7.6 million, Domain Group data shows.

They are taking advantage of the market now because part of the building had become vacant, making it a “better time to sell”, rather than leasing it for a long period of time, Mr Crombie said.

“Nine times out of 10, precincts around rail are always given a higher FSR (floor space ratio), that’s where the upside is for Commercial Road – someone can come in and invest and hold it for a couple of years until the next cycle or they can develop.”