Capital markets yield compression is nearing its end despite a stronger Queensland economy boosting the property market

While a stronger Queensland economy is boost leasing demand potential buyers in the capital markets sector need to rethink their strategies.

An improving economy is underpinning a surging property market but the big end of town will need to rethink their income strategies. Picture: AAP Image/Richard Walker

WHILE the current yield compression cycle in Queensland’s capital markets is nearing its end a robust economy is underpinning a surge in demand that should bolster the property market for the immediate future, according to research.

JLL’s latest White Paper — “What does Queensland’s improving economy mean for property market” — analysed key market trends over the past two years.

The report’s co-author and JLL managing director for Queensland Geoff McIntyre said 10 years after the global financial crisis and after considerable yield compression across all product types, real estate capital markets were in a mature phase of the cycle.

“That doesn’t mean a downturn is necessarily immanent but it does mean investors need to be wary of downside risks and look for investments that will protect them best in the case of a downturn,” he said.

“So if you’re in that capital markets area, now is the time to revert to good property strategy where you can ultimately grow income because you can’t rely on yield compression for capital growth.”

Mr McIntyre said owners will need to start considering change-of-use for non-performing assets to generate income.

He said for example retail owners has a great opportunity to “recalibrate” their assets and cater for non traditional tenancies.

“The retail footprint of the standard shopping centre in the suburbs in three to five years could in some cases halve and will be replaced by other things such as residential, childcare, office space and boutique destinational retail,” he said.

“Regardless, investors should still be fully aware of the capital market risks at present and be looking for longer-term investments that will position them well through the cycle.”

According to the White Paper the Queensland economy has now rebounded from its post-mining boom slump and returned to robust broadbased levels of growth with strong job creation, population growth and a mining resurgence.

“The physical markets have started to make their run,” Mr McIntyre said.

“That means an improvement in the demand for space in office, industrial and retail shows we’re at the start of this cycle.

“Looking back to the early 2000s here we had migration and house growth with the downstream benefit first to retail, then industrial and then the last piece of the puzzle while collar employment to boost the office market. That pattern will repeat again.”