MJM Property Group

April 2004 Issue:
Emerging market trends
You don't have to move to get a great leasing deal
Location, location, location...The key to retail success

Emerging market trends

In recent years, large corporations and Government Departments have decided that tying up huge amounts of capital in dormant real estate makes little financial sense. Major disposal programs have been undertaken with corporate property assets being sold as development and / or investment opportunities. This has been a common strategy for organisations such as AGL, Telstra, Boral, James Hardie, the Department of Defence, and Brickworks Ltd.

Small and medium sized businesses are now analysing the same strategy. Except where the company superannuation fund owns the business property or the organisation is certain that the business won’t grow or contract, more and more SMEs are examining the sale and lease option.

MJM is currently acting for two clients who are pursuing this strategy in two distinctly different ways. Firstly, FNL Communications, an advertising agency based in North Sydney, are moving across the bridge after selling their truly unique HQ at 44 Union Street in late 2003. FNL negotiated a short-term leaseback to enable them to plan their relocation professionally.

MJM Property Group were retained to undertake a comprehensive market review and property research program, which has resulted in a lease on the top floor of the former Mojo Building in East Sydney. The lettable area is 690 square metres, and the tenancy includes a large external terrace.

Secondly, the Australian Society of Ultrasound in Medicine (ASUM) appointed MJM to act as their exclusive agents in the sale of Suite 2, 181 High Street, Willoughby . ASUM are leasing back the property for 3 years at a rental of $65,000 pa net. The property sold for $710,000 which reflects a very attractive net yield of 9.15%

This investment attracted over 50 interested parties with small private investors, owner-occupiers and DIY superannuation funds featuring in the list of potential buyers. There has been a noticeable shift away from residential investment activity in recent months, with yields as low as 1% not being attractive with the prospect of short-term capital gains also in doubt. The age of negative gearing may be taking a breather with positive cash flow real estate investments like 181 High Street being more highly sought after.

As always, professional advice is vital in the disposal or acquisition of commercial investments and MJM offers the full range of services from agency co-ordination to valuation and consultancy.

You don't have to move to get a great leasing deal

The North Sydney and Sydney CBD office markets are still suffering from oversupply with vacancy factors over 25% in some sectors. However, you don’t have to be a new tenant searching for premises to enjoy the benefits of a soft leasing market.

Three major clients of MJM Property Group have secured new long-term leases at their existing premises before the formal expiration date.

Meat and Livestock Australia and Avenue Capital Management of North Sydney retained MJM to research the market for alternative locations plus commence negotiations with their existing landlords.

The result was a “win – win” with the lessor successfully retaining the tenant in return for a very attractive leasing package. The structure of the majority of major lessors being listed or unlisted property trusts or syndicates results in cash flow benefits being passed on to the lessees if face rentals stay in line with market expectations.

Brogan & Scaltrito Accountants, based in Elizabeth Street, Sydney, approached MJM four years after MJM negotiated the original office lease to act on their behalf. The option to extend the lease was exercised early in return for an incentive package that fairly reflected the status of the market.

The main lesson to come out of these transactions is that you should keep an eye on your property file and review your company’s space needs at least 12 months before the lease expires. Unless the existing tenancy is completely inappropriate in terms of quality, location or size then the costs of relocation will often negate the “great deal” you negotiate with the new landlord.

Location, location, location... The key to retail success

When Galaxy Bookshops' lease in Clarence Street, Sydney was nearing expiry, the idea of finding new premises in York Street closer to the parent company Abbey's was an obvious benefit to the synergy of the two related businesses.

They needed an advisor to research the market and identify potential new sites, plus negotiate the new lease as well as the make-good / relocation issues with the Clarence Street landlord.

By outsourcing these tasks to MJM Property Group, Jack Winning, the Managing Director of Abbey’s was able to concentrate on the future strategies and marketing plans for the new shop. “Michael’s role as our project manager minimised the stress factor and enabled us to concentrate on what we know… setting up and running a successful bookshop,” he said.

Galaxy eventually moved to the brand new lower ground shop at 143 York Street less than 50 metres from the Abbey’s HQ at 131 York Street. The move took place on time and on budget with a minimum of disruption to the Galaxy business.

MJM is now assisting Abbey’s negotiate a new lease at 131 York Street where they have been for over 20 years. Accordingly, the location of the two shops will now set up a stable long-term base for for the future.

November 2003 Issue