Property zoning in commercial property

Unlocking the essentials of commercial property zoning

Commercial property developers, investors and tenants all must have a comprehensive understanding of zoning. This is because zoning regulations dictate what you can and can’t do with a property. This is important when looking at development opportunities for a property but also when it comes to determining the ease of which you will be able to find a tenant or purchaser within the property’s given market.

Let’s look at the zoning categories used in New South Wales (NSW) and their significance to commercial property investment, development and letting.

Commercial zoning

Areas designated for commercial use fall under seven categories in NSW.

  1. E1 Local Centre zones are intended for local neighbourhood centres. Here, a range of small-scale retail, business and community use is encouraged such as shops, offices, medical centres and similar commercial activities. This zone now also encompasses larger-scale commercial and retail uses such as shopping centres, restaurants, offices and various commercial activities after the zoning legislation changes in December 2022.
  2. E2 Commercial Centre zones apply to land dedicated to Central Business Districts and allow for a broad range of commercial and business activities including retail, office buildings, entertainment venues and more.
  3. MU1 Mixed Use zones allow for mixed-use shared residential and commercial spaces. B4 zones allow for a wide array of commercial activities such as retail shops, restaurants and occasionally entertainment and leisure facilities such as gyms or educational institutions and healthcare facilities like medical centres or chemists.


Industrial property zoning

The zones below are specifically designated for industrial and manufacturing activities.

  1. E4 General Industrial zones are the most common, accommodating for activities such manufacturing, processing, warehousing, storage and distribution and research and development and are designed for lighter industrial activities with less potential for adverse environmental impacts. You can find manufacturing, storage, warehousing and other light industrial operations in these zones.
  2. E5 Heavy Industrial zones are intended for heavy and large-scale industrial activities with the potential for significant environmental impacts. Permissible land uses include heavy manufacturing, processing, recycling facilities, bulk storage and other intensive industrial operations.
  3. W4 Working Waterfront zones are intended to encourage industrial and maritime activities on foreshores, particularly where activities require direct foreshore access. Permissible land uses may include boat building and repair facilities, jetties, kiosks and boat launching ramps.


C1, C2, C3 and C4 conservation zoning

These four conservation zones are set aside for environmental protection of land. C1 for national parks and nature reserves, C2 for environmental conservation, C3 for environmental management and C4 for environmental living.

Commercial development is often prohibited due to the protective nature of this land and environmental impact assessments and approval from relevant authorities will likely be necessary to apply for rezoning for commercial use.


SP1 and SP2 special purpose zones

These zones are areas set aside for specific purposes like educational establishments, healthcare facilities, waste or water management. Commercial development within SP2 zones is usually related to such purposes and subject to stringent regulations to ensure compatibility with the designated use.


Why discovering zoning is important for commercial property

An understanding of the current zoning is important when looking to invest, purchase of lease a property for commercial use, however its also recommended that you consult the relevant local council. Land may be under review for rezoning and its important to research this as part of your due diligence to allow you to have a full picture of the potential of the property and any future possibilities or restrictions.

Each council has their own development control plans, local environmental plans and zoning variations when it comes to specific planning requirements for land. By seeking the most current information, developers, investors and tenants can ensure zoning is appropriate for the intended use and any planned future use as well as helping you to determine if the market demand matched the allowed use for the property.

Speak to the team at Commercial Collective who can assist you in understanding the market demand and whether the property you are considering will meet this.