The dreaded R word. The whisper is doing the rounds at dinner parties, in the financial pages and increasingly in conversations with our clients here on the Sydney city fringe. Whether we’re heading for a genuine downturn or just a rough patch of tighter conditions, it’s worth having the conversation before the headlines force it on us.
The good news? Not all commercial property is created equal when it comes to weathering a slowdown. Some asset classes are practically built for resilience and many of them happen to sit right on our doorstep, wedged between the likes of Sydney University, UTS and a growing wave of investors looking for somewhere sensible to park their capital now that the tax settings on residential property have shifted.
With land tax changes and tighter negative gearing conditions pushing investors to reconsider the family home portfolio, commercial property is having a moment. So let’s talk about where that money is best placed if a downturn does bite.
Before we get into asset classes, it’s worth noting why location matters so much to this conversation. The city fringe (think Camperdown, Chippendale, Newtown, Redfern, Ultimo) benefits from a mostly captive, recession-resistant population: students, academics, healthcare workers, and young professionals who need to live, work and shop locally, regardless of what the Reserve Bank of Australia is doing. Proximity to Sydney University, UTS and the surrounding teaching hospitals underpins demand in a way that few other locations can match.
Purpose-built co-living and student housing is about as close to recession-proof as property gets. Enrolments at Sydney Uni and UTS don’t dry up because the economy softens; if anything, further study becomes more attractive when the job market cools. Build-to-rent operators also benefit from diversified income across dozens or hundreds of tenancies rather than being exposed to a single lease. For investors nervous about vacancy risk, that’s a compelling argument.
Self-storage tends to do well in both booms and busts. In good times, people buy more stuff and need somewhere to put it. In lean times, people are downsizing, relocating for work or clearing out a garage to free up cash, and all of that drives storage demand. It’s a low-management, high-resilience asset class that’s increasingly popular with investors chasing stable, granular income.
Doctors, dentists, physiotherapists and allied health providers don’t stop seeing patients because interest rates rise. Healthcare spending is famously “non-discretionary,” and with an ageing population and a growing cluster of medical and allied health providers around our teaching hospitals, this is one of the steadiest tenant categories in the market. Long leases, low turnover, and fit-outs that are expensive for tenants to walk away from all add up to landlord-friendly stability.
Smaller, suburban office buildings (as opposed to CBD towers) have quietly become one of the more interesting plays on the fringe. Many of these are older warehouse or industrial buildings that have been thoughtfully repurposed into light-filled, characterful office space. This is where adaptive reuse really earns its keep: a well-converted heritage building with exposed brick, high ceilings and decent natural light appeals enormously to the creative agencies, design studios and boutique professional firms that want personality over polish and are willing to pay for it. These tenants also tend to be less price-sensitive about proximity to the CBD, provided the space has character and the location is walkable.
The classic shop-top format with retail or hospitality at street level, residential or office above remains a fringe favourite for good reason. A shop top spreads risk across income types and tenant categories, and the retail component tends to be occupied by essential, everyday businesses (cafés, hairdressers, convenience retail) that keep trading through a downturn because people still need coffee and a haircut, recession or not.
Supermarket-anchored retail is a long-time favourite of defensive investors, and it’s easy to see why. Groceries are about as non-discretionary as spending gets, and long leases with national or major regional operators provide the kind of income certainty that’s hard to find elsewhere in commercial property. Neighbourhood centres anchored by a supermarket tend to hold their value and their tenants through economic cycles that would flatten a discretionary retail strip.
It’s worth touching on transport-adjacent property because the case is a little more nuanced. Retail and commercial space near train stations and major bus interchanges benefits from consistent footfall that isn’t going anywhere. Commuters need to commute regardless of the economic climate. That said, transport hub retail can lean discretionary (cafés, convenience, takeaway) so it’s not quite as bulletproof as supermarkets or healthcare. In addition, people are on their way to somewhere else and usually in a hurry. Still, well-located transport-adjacent property, particularly near the Metro and light rail corridors feeding into the university precincts, deserves a place on the radar for investors after strong, sticky foot traffic.
We’d be remiss not to return to adaptive reuse, because it’s becoming a genuine point of difference for the fringe market. As development costs rise and new-build economics get harder to stack up, carefully repurposed premises such as old warehouses, converted terraces and former industrial buildings are increasingly attractive to creatives, start-ups and smaller businesses who value character, flexibility and a point of difference over a generic glass tower. These tenants are often fiercely loyal to a building once they’ve fitted it out, which translates into longer tenures and lower turnover for landlords. For investors, that’s a strong argument for looking beyond conventional new-build stock and considering well-located older buildings with genuine reuse potential.
Recessions, if and when they arrive, tend to punish discretionary spending and tenant categories with thin margins. They’re much kinder to essential services, sticky populations and diversified income streams – all elements the Sydney fringe market has in spades, thanks to its universities, hospitals and dense residential catchments.
If you’re an investor rethinking your portfolio in light of the new tax settings, now is a sensible time to have a conversation about which of these asset classes might suit your goals. We know this market inside out, and we’re always happy to talk through what’s available.
As always, when considering an investment in property, you should take into account your financial circumstances and seek advice from your financial adviser before acting.
As dedicated local commercial real estate agents, we can help you extract more value from your commercial property. Please get in touch to discuss your circumstances and assets so we can give you personalised advice. Whether it’s commercial leasing, management or sales, we’re here to help you with your Sydney-based commercial property.
Contact us at Ray White Commercial Sydney City Fringe
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