Meet the contenders: Australia’s second-tier cities with rising property markets

We’re familiar with the big guns of Sydney and Melbourne requiring delicious residential, commercial and industrial property but what about the aspiring second tier of Australian cities?

The list of second-tier towns starts with Mackay, now with 81,000 residents and falling (for the moment) just outside the Australian Top 20. Picture: Heidi Petith

They are the contenders, the middle order, the aspiring second tier of Australian cities.

We’re familiar with the big guns, with Sydney and Melbourne and their five-million-plus populations requiring delicious residential, commercial and industrial property.

And we all know about South East Queensland, Australia’s very own Koala Conurbation comprising Brisbane and its attendant lifestyle cities namely the Gold Coast and the Sunshine Coast.

I canvassed the demographic history of, and outlook for, the 20 largest cities in Australia over the course of a century last month.

All very interesting I suppose for the largest property players operating in Australia’s largest property markets. But what are the prospects in second-tier cities for smaller property players?The list: Australia’s aspiring second-tier cities

I have assembled a list of 25 cities that comprise the second order; cities occupying positions No.21 through to 46 in a national ranking of Australia’s largest cities by 2021 population (see table below).

The list starts with Mackay, now with 81,000 residents and falling (for the moment) just outside the Australian Top 20, and it ends with Mount Gambier now with 30,000 residents. Although Mount Gambier only makes this list because Kalgoorlie lost 11 per cent of its population following the collapse of the mining boom.

All 25 so-called second-tier cities comprise 1.2 million residents or about 5 per cent of the nation. Collectively these cities represent a market the size of Adelaide. And they offer expanding markets for projects in residential, commercial and industrial property in regional Australia.

Every year the ABS publishes population estimates of the 100 largest cities (or Statistical Urban Areas) in Australia and which includes places with more than 10,000 residents.

The thing that I particularly like about this data set is that the estimates are revised over time to ensure that the historic populations align each city’s ever expanding geographic boundaries. It offers an apples-with-apples comparison of city growth over time.

Long-term growth towns

Most long-term growth within this second tier of Australian cities applies to places like Hervey Bay, up 66 per cent from 34,000 in 2001 to 57,000 in 2021, and Bunbury, up 50 per cent from 50,000 in 2001 to 75,000 in 2021 (see tables below).

These towns might be on opposite sides of the continent, but Hervey Bay and Bunbury have been transformed during the first two decades of the 21st century.

Property players, you really should have jumped into these markets 20 years ago.

The drivers of growth for Hervey Bay is largely retirement and lifestyle. But over recent years the city has improved its connectivity into bigger cities with the opening of direct flights to Sydney and elsewhere.

On the other hand, Bunbury is driven by its port, by resources, by lifestyle as well as by its emerging role as the de facto capital city of the West’s South West.

Bunbury is a bit like Brussels commanding control over a territory the size of Belgium.

Add in an airport, a university campus, skills training facilities and regional offices for state and federal government departments and you have all the accoutrement required for rapid progression up the Australian cities league ladder.

Over recent years Harvey Bay has improved its connectivity into bigger cities with the opening of direct flights to Sydney.

Bunbury ranked fifth in this list in 2001; it now ranks third and its growing faster than Rockhampton (2nd) and Mackay (1st). Mackay must fend off a robust challenge from Bunbury if it is to scrape into the Top 20 list of Australian cities in the post-Covid era. Bunbury will seemingly, effortlessly, best Rockhampton before the end of the decade.

Then again Rocky’s growth is transferred to the Capricorn Coast to places like Yeppoon and the delightfully named coastal town of Zilzie. Coastal Hervey Bay has effectively siphoned growth from inland Maryborough just as Maroochydore first emerged as Nambour’s lifestyle zone on the coast. Byron Bay and Ballina have done similar to Lismore. It’s a common east coast growth-transfer story.

Also on the up between 2001 and 2021 are lifestyle and retirement cities like Port Macquarie up 35 per cent, Nowra-Bomaderry up 29 per cent and Coffs Harbour up 26 per cent.

Some towns create broader and further growth opportunities by attracting supporting services such as retail, education and public administration activities. Eventually the weight of numbers on the coast transfers shops, offices, industrial buildings, council administration from inland hubs to far flasher facilities “down the coast”.

More retirees prompt the need for more services which attract workers with families which then drives up demand for education, and so on. The whole process becomes an upward spiral, a multiplier effect, which propels a city, local residents and the business community forward.

Resources cities like Gladstone-Tannum Sands and Mackay lifted their population bases by more than 30 per cent over these two decades but most of this growth occurred in the lead-up to the resources boom.

Over the decade to 2021, Mackay added just 2 per cent to its population base whereas over the previous decade the increase was 31 per cent.

The last decade

THE decade to 2021 has been a mixed bag in terms of regional Australia. It started off with an escalating resources boom, delivering what was called a patchwork economy where resources towns surged, then stalled, then maybe subsided and finally stabilised during the pandemic.

In the last decade towns that did best were places like the commuter town of Warragul-Drouin (2021 pop 42,000) which jumped 39 per cent and the West’s lifestyle town of Busselton (2021 pop 41,000). Between 2011 and 2021 the Warragul-Drouin rocket overtook 11 bigger towns and ratcheted up the rankings.

Over this decade which encompassed the collapse of the mining boom FIFO workers began gravitating to places like Busselton on the West’s lifestyle coast.

Port Macquarie also performed well during this decade, growing by 16 per cent, outpacing nearby Coffs Harbour which jumped by 10 per cent. “Port” might be closing the gap on “Coffs,” but Coffs is 45 per cent bigger. If Port is to overtake Coffs it isn’t likely to happen before the 2030s, meaning there’s plenty of time for Coffs to accelerate.

The population of the gold mining town Kalgoorlie did indeed drop after the resources boom, making way for the steady riser Mount Gambier. Also tumbling out of the second-tier city list was Lismore and Alice Springs, both in the 2000s. By 2011 these towns has been replaced in the rankings by fast-rising Busselton and by the Warragul-Drouin Express.

Lessons for property

The distinguishing point about the second tier of Australian cities is that each town has a different story to tell, each has a demographic speciality, and each has distinctive advantages and challenges. All these factors come together to create opportunities for growth which then translates into prospects for the SME property industry.

With strong and sustained growth over the last two decades, through boom and bust in the resources industry, Bunbury simply keeps expanding. Here is a city that has grasped a local opportunity: the need for a Ballarat-kind of city capable of dominating an entire territory, the West’s South West. Yes, Busselton can emerge and fulfil a rising market niche for retirement and lifestyle. But the bigger and the more broadly based city of Bunbury continues to power ahead delivering an ever-broader range of urban services.

Like Hervey Bay 20 years earlier, what Bunbury needs, in my view, is a greater level of direct connectivity with the east. Cut Perth out of the loop and engage more directly to both Melbourne and Sydney. This is what Geelong did with Avalon a generation ago. More recently Bendigo did the same by opening an air link with Sydney. Further developing this direct link to the east is Bunbury’s next step, surely.

The rise and then the stabilisation of Gladstone and Mackay, and the contraction of Kalgoorlie, all over the last 20 years, offers sobering evidence of the fickleness of resources as a driver of growth.

The longer-term drivers of growth, of the demand for property, are less in-your-face than coal, gas, iron-ore or gold for that matter. A property business in a second-tier city will have greater chances of long-term success when the local market is tied into these stable drivers of growth.

These are drivers like ageing, retirement, the relentless pursuit of lifestyle, the Australian obsession with sea change and/or tree change and – new kid on the block – the concept of working from home.

The Australians will never revert en masse to the old model of living in the suburbs and commuting to work. This means there is likely to be rising demand for lifestyle property beyond our capital cities in places like Bunbury, Hervey Bay, Port Macquarie, Busselton, Warragul-Drouin and many more in years to come.

Each of these rising second-tier cities will require industrial, commercial and retail property appropriately scaled to local markets.

By examining the rise and fall of cities over decades it’s possible to identify long-term rising towns around which local SME property players can carve out, dominate and service their very own property patch. And prosper in the process.

Bernard Salt is executive director of The Demographics Group; research and data by Hari Hara Priya Kannan.