Edgy Surry Hills offices hit the market

Two redeveloped properties in Sydney's popular CBD fringe market of Surry Hills, one of them home to tech unicorn Canva, have been listed for sale with price expectations of about $110 million.

Developer Cornerstone is looking to sell the assets – Surry Hills House at 10-14 Waterloo Street and the commercial component of No. 1 Lacey at 119 Kippax Street – in one line or separately, as it looks for new redevelopment and adaptive re-use projects.

Surry Hills House has 5692sq m of net lettable area while the commercial component of No. 1 Lacey, a converted heritage warehouse with luxury apartments on the upper levels, offers 1252sq m of NLA.

Cornerstone founder Michael Grant said he had had eight unsolicited offers over the past 12 months, including three since COVID-19, and that the two assets represented great value with further rental growth and high-quality tenants.

"While we are lowly geared and the buildings provide great cash flow and strong depreciation benefits, we have completed our works to these buildings and are eyeing the next opportunities in our core business of development and adaptive re-use,” Mr Grant said.

Surry Hills House generates a net income of $3726,734 a year and No. 1 Lacey holds a net income of $959,931 a year.

JLL’s James Aroney and Mitch Noonan have been appointed with I.B Property’s Steffan Ippolito to sell the properties.

“Based on the high proportion of ASX-listed, national and multinational tenants, together with a fully refurbished market-leading product, we expect both assets to be well received by investors looking for stabilised properties which are underpinned by strong fundamentals," Mr Noonan said.

Mr Aroney said the strong levels of demand Surry Hills had experienced over the past few years had translated into strong rental growth.

We are eyeing the next opportunities in our core business of development and adaptive re-use.
— Michael Grant, Cornerstone founder

JLL research found Surry Hills is the top performer across all 19 office markets tracked in Australia, with a 10.4 per cent increase in rents a year from 2015 to 2019. This compared to 6.7 per cent for the Sydney CBD over the same time.

Surry Hills' vacancy rate sits at 5.3 per cent, well below the 10-year long-term Sydney fringe average of 7 per cent.

The suburb, which is popular with media and technology tenants, is set to receive an even bigger boost once the Central Station Technology precinct is built nearby and anchored by Australian software giant Atlassian.

Cornerstone has redeveloped several award-winning heritage properties and has $600 million of projects in city fringe locations under its belt, including Holt & Hart, a 15,000sq m office project also in Surry Hills and the adaptive re-use of two adjacent industrial buildings at nearby Cleveland & Co.