Counting the dollars

We just settled the $460,000 sale of a 2 bedroom apartment in the South Building of our development at 4-8 Charles Street Adelaide (aka 223 North Terrace). This apartment was originally bought off the plan for $305,000 in October 2006 and we managed the rental since that date for the owner.

As it quite conveniently turned out that it was both bought and sold in the month of October, we thought we would "run the slide rule" over his 4 year investment. The initial rental was $365 per week in the first year and this was periodically increased to $450 per week as at October 2010.

So if we add his gross sale profit of $155,000 and his rental income of $85,900 this totals $240,900, equating to a gross return of some 79% on the initial $305,000 investment.

We encourage all of our readers to buy an apartment in the City of Adelaide ... hopefully from us : )

Free Parking (As long as you don't have a car...)

We noted with interest that research by the City of Sydney Council (as reported in the Australian Financial Review) shows 1 in 3 households across the Sydney local government area do not have cars. This means that planning authorities and developers are now re-thinking how many carparks need to go into new apartment buildings.

In Adelaide the conventional approach to apartment buildings has been to provide 1 carpark for a 2 bedroom apartment and 2 carparks for a 3 bedroom apartment in a building designed to attract owner occupiers (like 223 North Terrace). For buildings designed with the international student market in mind (such as the iPad in Waymouth Street) no on-site carparks are provided, and serviced apartment buildings (for example the Mantra on Hindmarsh Square) have relatively few carparks.

As carparks cost over $50,000 each in a multi-storey apartment building, savings can be made now that the city dwellers are starting to give up their cars. Developers will focus more on spaces in the building for bikes and scooters and possibly for carshare companies. Apartments without car spaces will be more affordable, and more affordable apartments will mean more sales and an increase in the city's population with less traffic congestion!

Mixed Use Buildings

It doesn't seem that long ago when Peter was advising the owners of Ruthven Mansions at 15 to 27 Pulteney Street on the feasibility of selling off the apartments on separate strata titles while having a retail arcade in separate ownership at ground level. This all seemed so novel (not to mention risky) back in 1993!

Ruthven Mansions was built in 1911 and was a very early venture in apartment living in the City of Adelaide. This obviously fell out of fashion it later became home to the Government Chest Clinic in 1953 and was then refurbished in 1980 by architect John Chappel to operate as an apartment hotel.

Now mixed use buildings are quite common place, because multiple uses are often the most economic use of expensive city land. According to the Adelaide City Council the city population in 2010 is 21,000 and forecast to increase by another 20,130 over the next 21 years. This means that many more mixed use buildings are going to be built and we hope that they involve some new and exciting architecture!

Click on these links for more information on real life examples of mixed use buildings in the city:

223 North Terrace

23 King William Street

Mixed Use Building - 223 North Terrace

Construction on this building commenced in 1969 as a next door carpark for the South Australian department store John Martins. The iconic store closed in 1998, but the North Terrace car park remained to service the new David Jones store which opened in its place.

The Haywards, a wealthy merchant family that owned "Johnnies" had originally planned to build an international hotel on the rooftop of the carpark. The structure was designed with additional reinforcement to take the extra weight, and the lift shafts were strategically positioned so that they could be extended.

In 2001, Buchan Lee in consortium acquired the air rights above the car park and developed the "Martin Towers" apartment project, which later became known as "223 North Terrace". Construction of the 2 apartment buildings (the "North Tower" and "South Tower") commenced in 2003. The transfer zone of the existing carpark roof between the 2 buildings was developed into a recreational area with a lap pool, spa, sauna, gym and skygarden while the sub-basement of the carpark was set aside for apartment resident parking.

In addition to the carpark and apartment mix, the third use of the building is retail shopping, with many shops in the ground floor arcade joining Rundle Mall, as well as several fronting to Charles Street and North Terrace.

Then and Now

223 North Terrace Adelaide comprises of 111 apartments in 2 buildings built over the old John Martins carpark. This Buchan Lee project was completed in the last quarter of 2006 and we manage around 45 apartments in the buildings for clients.

We thought it would be interesting to examine the rental growth since completion, so we picked a typical 2 bedroom apartment in the South building as an example. It was first leased on 23 September 2006, and was just rented to its 3rd tenant a couple of weeks ago. The 79 square metre 2 bedroom apartment is rented with a car park and on an unfurnished basis.

It first rented for $375 per week ($247 per square metre per annum) and current rental is $480 per week ($316 per square metre per annum) both for a 12 month lease period. So in a period heading towards 3 and a half years, this is an increase of 28%. Hopefully for the landlord this growth will continue for the next 3 and a half years - a 28% increase over the current rental would be $614 per week!

How's the market looking?

We are definitely feeling more optimistic than a few months ago and the level of enquiry from investors and owner occupiers is increasing. We also recently completed 2 significant apartment sales at 223 North Terrace for $720,000 and in The Conservatory at Hindmarsh Square for $725,000.

The Australian Financial Review has written about a recent report which says that the value of home loans increased by nearly 33% from August 2008 with first home buyers responsible for 28% of mortgages issued in May 2009. Also, according to the National Bank's latest quarterly report, business confidence has jumped substantially in the 3 months to June 2008. When you factor in the Reserve Bank of Australia's interest rate cut from 7.25% in August 2008 to 3% in April of this year, as well as the impact of the first home owners boost of up to $21,000, sales activity just had to get better.

So all the ingredients for an increase in residential sales activity are present - low interest rates, government grants, and increasing business and consumer confidence.

If only the Crows and Power could win every week our local market would be back in boom mode by late spring!

Boston Massachusetts to Adelaide

The power of the internet never ceases to amaze me, probably because I am a bit if a dinosaur...

Anyway, we rented an apartment in 223 North Terrace to a lovely young couple from Boston who have taken up professional positions at Adelaide University.

We took them out for a family lunch at the Vietnam restaurant on Addison Road at Pennington. If you ever go, try the quail or the pictured soft-shell crab (what's left of it).

Our new residents told us they knew exactly which building in Adelaide they wanted to live in before they arrived, as they had done all their research on their computer!

Imagine sitting there in Boston, founded in 1630 by puritan colonists from England, one of the oldest cities in the United States and a centre of education, browsing through properties in Adelaide. Wow! The world is really a small place now.

Residential vs Commercial prices

We thought it would be fun to compare some of our apartment rentals with small office rentals in the City of Adelaide. We looked at this on a "per square metre per annum" basis (shortened to 'per sqm' for convenience) and on a gross rental approach (ie the rental includes the property outgoings such as council rates, SA Water charges and body corporate fees).

The office building we picked is called Aurora on Pirie, and the rental includes a sky deck rooftop recreational facility with a gym, sauna, spa and lap pool. Carparking is not included.

Depending on the floor level you want, the rentals are from $460 to $480 per sqm.

So what about apartments?

This week in 223 North Terrace (next to David Jones) we leased a 1 bed and study apartment for $395 per week unfurnished but including whitegoods. Just like the offices in Aurora, it has access to a gym, spa, sauna, and lap pool, and also has no carpark. This apartment has an area of 62 sqm, so it works out to be $332 per sqm.

In the same building, a fully furnished apartment with a carpark and a North Terrace view, 2 bedrooms and 2 bathrooms will cost you $650 per week or $345 per sqm.

	Office	Apartment
Rate	$460 to $480 per sqm	$332 to $345 per sqm

So if you want to live and work in the city you should consider renting an apartment and meeting your clients in coffee shops. It's a lot cheaper and the coffee is a whole lot better than what you drink in the office!