Motivation across Brisbane: Commentary on the QLD's 2017 Commercial Property Sales Market

Motivation across Brisbane: Commentary on QLD's 2017 commercial property market

A diverse range of deals have characterised Brisbane’s commercial sales market throughout 2017, according to industry experts.

Savills Commercial Sales and Leasing teams have delivered a series of successful transactions throughout the past 12 months, which have indicated no hesitation from the Brisbane market.

Commercial Sales

2017 had been a year which represents “a rising market in terms of values’ for Queensland with a rise in unconditional offers.

Over the last 12 months we have noticed a lot of people making offers earlier which tends to suggest a rise in market confidence as they are trying to avoid paying more later.

The majority of deals done by the Savills Commercial Sales team this year have been unconditional contacts with two examples of this being a $5 million sale at 79 Main Street, Beenleigh to a Singaporean investor and 225 St Pauls Terrace, Fortitude Valley sold to a local buyer for $4.72 million.

Unlike the Sydney and Melbourne apartment market which is being creating to specifically sell to foreign investors the Brisbane apartment market remains relative.

There certainly is significant supply of apartments across the Brisbane market however we believe they will all get occupied.

The relative value of Brisbane compared to Sydney and Melbourne means that some stage that gap will narrow. This will be due to a slowing of the rate of growth in Sydney and Melbourne and a rise in Brisbane property values relative to the southern capitals.

A likely outcome will be people selling up in Sydney and Melbourne and moving to Brisbane, and wealthy immigrants rather moving to Brisbane rather than to Sydney and Melbourne to enjoy better value and a better lifestyle.

Capital Transactions

2017 was a year of renewed optimism for vendors and purchasers.

Institutional and offshore capital returning to the Brisbane market with confidence with $1.8bn of major transactions over $20m.

A Grade CBD office yields now firmly tracking circa 6% with several transactions indicating pricing at this level offering a significant yield premium to Sydney.

European capital continues to be attracted to the yield premium on offer in Brisbane versus other east coast commercial markets; investors such as Deutsche Bank (120 Edward Street - $142.6m), M&G (HQ South - $119m) and BVK (160 Ann Street) all acquiring assets in the Brisbane market with deals totaling over $440m in the CBD and Fringe.

Private investors are returning to the market in search for strategic assets – Seymour Group securing assets such as 433 Logan Road for $27.6m, signaling a returning confidence in the emerging inner city markets.

Intensifying focus on the George Street precinct and future potential, a unique combination of earmarked infrastructure & private sector investment – Cross River Rail, Brisbane Live and major private development such as Brisbane Quarter and Queens Wharf.

For 2018 we expect to see further tightening of capitalisation rates for core assets, particularly premium, and increased capital entering the Brisbane CBD from private investors domiciled in Asia, particularly Hong Kong & Singapore.

As markets in Sydney and Melbourne continue to be well sought after, Brisbane will continued to be viewed as an attractive “value market” to be a vital part of an Australian portfolio.

Increasing focus on infrastructure projects will assist with tenant demand and ultimately institutional investor confidence.

Office Leasing

2017 has demonstrated that medium-term fundamentals are positive for the Brisbane office market, with confidence being consistently higher than the national level with state economic growth forecast to exceed national growth over the coming decade.

There has been some recent signs of strengthening in the leasing market, which will be supported by a lack of supply in 2017 and into 2018. Longer term proposed developments are providing choice for potential pre-commitments but are largely 2020+ options.

The last six months has seen an improvement in sentiment across the Brisbane office markets and as a result we have seen an improvement in business confidence with new tenants active as well as business expansion.

The second half of 2017 saw a modest return to positive net absorption as overall office market conditions continue to improve off the back of better economic activity. Queensland’s GSP is expected to rebound to above 3% in 2017/18 and remain above 3.5% in the following two financial years.

Early 2018 will see net absorption will be boosted by tenant relocations into new accommodation.

The majority of Fringe leasing transactions are expected continue to occur within the Urban Renewal and Inner South precincts due to the provision of high levels of amenity, public transport and proximity to the CBD.

We regard the Urban Renewal and Inner South markets as being effectively homogenous with the CBD market, and so incentives are expected to persist at current levels as Fringe landlords continue to compete with the affordable CBD options being presented to tenants.

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The team at Savills are experts in their respective fields, with extensive experience backed by 150 years of Savills industry knowledge. This makes us well placed to provide you with the most informed view of current trends as well as helpful guides and top tips across the commercial and residential property sectors.

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