Queensland agency bosses say 2019 was a stellar year for office and industrial but they’re cautious going into next year
It was a year of big sales and tightening yields in the office and industrial investment sectors, but the heads of two agencies concede there will be headwinds to negotiate in 2020.
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THE Queensland commercial property market continued to power along this year with investors locking in deals for solid returns as owner-occupiers took advantage of record low interest rates.
While uncertainty over the Federal Election put the breaks on the market in the first six months of 2019 sales volumes for investment grade office and industrial assets will end the year in record territory.
The top 20 commercial property deals in Queensland in 2018
Yields for quality office and industrial investments continued to tighten and there were expectations that the trend will remain next year, although there were challenges for secondary retail property assets.
In the leasing market the office vacancy rate in the Brisbane CBD tightened in 2019 but still remained above 10 per cent and generally incentives stayed stubbornly over 30 per cent mark in many deals.
Colliers International Queensland chief executive Simon Beirne said in general it was a “positive year” boosted by Brisbane’s infrastructure boom and its compelling value for money proposition compared to Sydney and Melbourne.
However, he warned that the increase in the land tax rate for foreign owners in the last Queensland budget caused headaches for many offshore investors.
“Office and industrial investments have had a record year, outperforming 2018 with large scale transactions driving the volume of sales,” Mr Beirne said.
“However, bricks and mortar in retail sector is going through structural change — we are seeing softer tenant demand and retails sales, due to an increase in online retail activity.”
According to Colliers if pending, conditional and under due diligence sales were included the total volume of Brisbane commercial property sales over $5 million across the three sectors will be $5.735 billion by the end of the year, well above the 2018 level.
However, despite the big figures there remained issues. While the resurgence of the resources sector rolled on a major issue remains Queensland’s unemployment rate which at 6.4 per cent is the second highest in the country and in the regions it has hit double digits.
While Queensland’s population rate of 1.8 per cent was above the national average, consumer and confidence surveys were generally down on previous years — potentially warning of dark economic clouds hovering over the Sunshine Sate.
CBRE senior managing director Queensland Bruce Baker acknowledged the investment market’s stellar year.
“There’s no doubt the office sector and investment markets are going to have a very strong year, particularly off the back of the continued drop in interest rates and cost of capital in return expectations,” he said.
“All of that all driven by monetary policy and availability of equity and debt. But in some regards in Queensland it’s been a tougher year than 2018. The Queensland economy has slowed a bit.
“There is still a lot of onshore and onshore money out there looking for good returns but it’s a lot more discerning that it was 12 months ago.”
Mr Baker said he remained “a cautiously optimistic” for 2020.
“At the same time I think you’d have to be a prudent business manager and keep a very close eye on macro and micro economic conditions that are influencing decision making,” he said.
“Interest rates going down are a good thing for investment markets but they are also a sign of Government trying to stimulate the economy so it’s a bit of a double edged sword.”
Mr Beirne agreed with Mr Baker saying he was generally “upbeat” about 2020.
“We see asset pricing improving — with further cap rate compression with more onshore and offshore capital heading into Brisbane,” he said.
“The challenge will be finding suitable stock to invest in or occupy. With debt costs reducing so will returns in parallel making it still a pretty attractive environment for real estate.
“More infrastructure is having positive impact on real estate with increased tenant and investor demand. The unemployment rate will soften with greater infrastructure spending and there will be an improvement in confidence.”
TOP 10 DEALS FOR 2019
1. 400 George St, CBD ................................................................. office $524.75m
2. The Complex, 140 Creek St, CBD .......................................... office $425m
3. Q&A Centre, 141 Queen St, CBD ........................................... retail/office $395m
4. Jubilee Place, 470 St Pauls Tce, Bowen Hills ...................... office $267.2m
5. Noosa Civic Shopping Centre, Noosaville ............................... retail $233m
6. 15 Adelaide St and 239 George St, CBD ................................ office $223.1m
7. 46 Robinson Rd East, Virginia ................................................. industrial $211.8m
8. Distribution centre, 105-107 Magnesium Drive, Crestmead … industrial $183.6m
9. 313 Adelaide St, CBD ............................................................... office $155.8m
10. Next Hotel, 72 Queen St, CBD ................................................ hotel $150m
Source CBRE/Colliers International
Up to Dec. 12, 2019
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