Queensland commercial property market closes year on a high note

THE Queensland commercial property market gathered steam in 2017, with expectations that the good times will continue next year.

THE Queensland commercial property market gathered steam in 2017, with expectations that the good times will continue next year.

Consolidated Properties executive chairman Don O’Rorke said 2017 was “a series of stories that are different for each sector”.

“This year has been a good year for property generally, with transaction levels high and assets hotly contested,” he said.

“We’re in a low growth, low interest rate, low volatility environment and the risks are relatively low.”

While Cyclone Debbie may have wreaked havoc in the regions, tourism’s resurgence continued and there is a raft of city-defining infrastructure projects in Brisbane on the way.

The resources sector appears to have turned around and southern investors are scouring Queensland for yield-driven investments, while Chinese investors have dwindled after their government put the brakes on taking money offshore.

While the apparent oversupply of inner-city apartments in Brisbane gave developers headaches, it was generally upwards and onwards for the industrial, office and retail sectors as yields generally tightened.

Alceon executive director Todd Pepper says 2017 may have marked a change in the market.

“I think there’s been a constant drive towards lower yields and higher prices that don’t truly reflect some of the underlying risks in certain sectors,” he said.

“We’ve gone through this paradigm shift for return expectations purely on the back of low interest rates, significant liquidity in the market and increasing competition from both domestic institutions and foreign investors.”

Economically, Queensland is way behind NSW and Victoria, and state debt has ballooned to record levels. However, crucially, population is steadily growing, with the important interstate migration numbers turning around.

This has helped the house and land market, although much of the focus has been on the inner-city apartment oversupply, which Mr O’Rorke says has been “grossly over-exaggerated”.

“It’s not as bad as had been reported. Settlements remain an issue for everyone, but I think the consensus is that there’s a default rate of around 5 per cent and those defaults have largely been with the offshore Chinese buyers,” he said.

“But we’ll see a turnaround towards the end of 2018 and stock will be cleared because of job growth, the disparity between Brisbane prices and Sydney and Melbourne prices, interstate migration and Baby Boomers downsizing.”

There are a raft of city-defining infrastructure projects in Brisbane on the way. Picture: AAP/Claudia Baxter

Strong demand and high levels of take-up for prime and secondary stock have seen industrial vacancy across Brisbane fall to its lowest level for a numbers of years.

In line with leasing demand, a lack of stock and a winding back of speculative industrial construction have seen sale volumes edge lower in 2017, although yields have held up.

There is also confidence in the Brisbane CBD office market, despite vacancy stubbornly remaining in the 15 per cent to 16 per cent range.

This is forecast to tighten with more than 100,000sq m of requirements being processed in the CBD and fringe, while there is an expected 140,000sq m of State Government space needed in the next few years.

Developers are looking long term and with the Shayher Group’s speculative 300 George St office tower already under way, there are expectations work could start on another few more towers by the end of next year.

Mr O’Rorke said developers were “putting sites together for the next cycle”.

“Brisbane has definitely passed the low point in the cycle and we think yields will continue to compress for well-leased office buildings,” he said.

Despite the looming threat of Amazon, retail yields continued to tighten through the year, especially for quality neighbourhood centres.

But Mr Pepper says retail yields have now generally stabilised.

“There’s a lot of heat that’s come out of the retail market now. In the past, each time you have an asset closed there would be 10 offers, but now it seems to be three to five,” he said.

“Prices are still being achieved but the competitive tension has softened.”

TOP 10 DEALS FOR 2017

1. Indooroopilly Shopping Centre, Indooroopilly (retail) 50pc ..... $800m

2. Santos Place, Brisbane CBD (office) .......................................... $370m

3. Gasworks Plaza, Newstead (retail/office)..................................... $248.4m

4. 400 George St, Brisbane CBD (office) 50pc .............................. $210m

5. Green Square South Tower, Fortitude Valley (office) ................ $205.5m

6. Town Square Redbank Plains, Redbank Plains (retail) .............. $158m

7. Coca-Cola Amatil Distribution Facility, Richlands (industrial)... $157m

8. Crowe Horwath Centre, Brisbane CBD (office) ......................... $144.7m

9. State Law Building, Brisbane CBD (office) ............................... $144.6m

10. Grand Sheraton Mirage Resort, Gold Coast (hotel) ................. $140m

Source: JLL/CBRE List complete up to 22/12/17