The Brisbane office market, which has been slow to bounce back since the end of the mining boom in 2012, has finally swung into recovery mode following a $2.2 billion spree by investors, according to Savills Research.1
The upbeat assessment comes a month after BIS Oxford Economics urged caution against expectations that the worst was over, arguing that the office market remained in oversupply and that despite new lease deals being struck, absorption rates were minimal.
However, the latest Savills Research Q2-18 Office Quarter Time report sees the office building investment figures over FY18 as clear evidence that green shoots are finally emerging in the Brisbane market.
It says the sales have defied expectations of a softening over the past year with the fringe market posting close to $1 billion in sales. This compares with $796 million in sales a year ago.
“Sales in Brisbane’s fringe office markets were driven by interest from both foreign and domestic private investors driving up demand for assets in the $10 million to $50 million range, whilst domestic institutional investors were driving up demand for larger, more prized prime grade assets,” says Peter Chapple, Savills’ state director of capital transaction in Queensland.
“We expect this level of interest to increase considerably over the next six months as investors chase capital value growth relative to the other east coast markets.
“The Brisbane turnaround story is now taking shape, there is a genuine sense of improvement in the occupier markets and increased confidence from buyers looking to position themselves to take advantage of this dynamic.”
The strong sales performance in the fringe market has been bolstered by a robust CBD market, which recorded $1.2 billion in sales in FY18. This is up from $1.1 billion in FY17.
The surge in sales has led to a fall in Brisbane’s A-grade market yields which are down 0.5 percentage points to 6.15 per cent. Although tightening at a greater rate than southern capitals, they remain well above Sydney yields of 4.9 per cent and Melbourne at 5.2 per cent.
The soft point for the data was a lack of capital growth in the fringe market. However, the CBD market posted a rise of 4.4 per cent in capital values over FY18.
Shrabastee Mallik, Savills’ associate director of capital strategy and research, says there will always be a marked difference between the CBD and fringe market in Brisbane.
“However, given the proximity of the fringe market to the CBD and the ongoing renewal of Brisbane’s fringe office markets, the differences in prices and yields are much less pronounced than in other office markets nationally,” she says.
Meanwhile, Chapple says there is anecdotal evidence that investor interest in the office Brisbane market will boost overall investment volumes in the latter half of the calendar year.
He says the Brisbane office market is benefiting from some of Australia’s best labour market indicators as well as population and economic growth numbers.
However, BIS Oxford Economics is not banking on a Brisbane office recovery until the first half of 2020.
In a report titled Brisbane Commercial Property Prospects 2018-28 released last month, it argues that a buoyant market for investors is pushing new projects into the market earlier than needed.
BIS says Brisbane, with 300,000sqm of vacant space in the CBD, still has some of the highest office leasing incentives in Australia.
Walker Corp Offloads Proposed Ann Street Tower
Property fund manager EG has acquired a site in Brisbane’s Fortitude Valley, just 1km north of its CBD, for $27.72 million on a tight 4.7 per cent net yield.
The 3,582sq m site has development approval for two separate schemes — one residential, one commercial — with Lang Walker’s Walker Corporation scrapping the apartment scheme after the market turned in 2017.
Walker Corporation acquired the whole-block island site in 2015 for $22.2 million.
The developer later won approval for a 26-storey A-grade office tower comprising 44,000sq m of net lettable area and ground floor retail. Cox Architecture designed the scheme.
The $400 million green star-rated office tower would eventually house up to 5,000 workers, Walker Corporation said.
Located close to trendy James Street, EG’s latest asset joins a swathe of office development in the area including Consolidated Properties’ $250 million office scheme at 895 Ann Street and Pellegrino Group’s commercial building at 89 McLachlan Street.
The 801 Ann Street site is the eighth asset to join EG’s Yield Plus Infrastructure No. 2 fund, which has a $750 million real estate mandate.
EG has more than $2.4 billion worth of assets under management.
In 2018, the Sydney-based fund manager picked up a 17-storey Brisbane office tower from Peter Harburg’s portfolio and offloaded Fortitude Valley’s Optus Centre site for $23.5 million.
The site, which had approval for a controversial apartment scheme, was acquired by Scott Hutchinson of Hutchinson Builders for the 3,300-person capacity Fortitude Valley Music Hall.
A spokesperson for EG Funds said that the site had been initially acquired as a yield producing asset. The Volvo showroom and car service centre lease expires in 2024.
The transaction was brokered off-market by JLL’s Seb Turnbull.
PortGate Logistics signs on for 30 years in Brisbane
Transport and logistics operator, PortGate Logistics, will relocate to a new three hectare site as part of the Fisherman Islands development at the Port of Brisbane.
A sub-tenant of Portgate Properties, PortGate Logistics has committed to a 30-year lease deal that will include purpose-built facilities comprising a 6000 square metre warehouse, container hardstand, office building and car parking.
Additional areas will be developed for log storage and pack-unpack facilities.
Portgate Properties Pty Ltd currently sub-lease several warehouses and hardstand areas within the Port of Brisbane PortGate precinct where it has maintained a presence since 2006.
Brothers Steve and Terry Tzaneros have run container parks on Fisherman Islands since the early 1990s.
Port of Brisbane CEO, Roy Cummins, said the lease not only reaffirmed PBPL’s long-standing partnership with PortGate Logistics, but the new location would enable PortGate Logistics to deliver great benefits to its customers.
“We were very pleased to be able to work closely with PortGate Logistics to identify an opportunity for them to relocate ‘on Island’, which will also allow their customers more convenient access to the container terminals,” he said.
“This is another demonstration of the Port of Brisbane’s ability to work with our existing customers to support their relocation or expansion requirements, and provide long-term certainty for all parties,” said Cummins.
“The Port of Brisbane’s property revolution continues to go from strength to strength.”
In a joint statement, Arthur and John Tzaneros said, “For PortGate Logistics to continue growing it needed to move on their own designated site, Office, Warehouse, Full Container Park & Reefer Area, Large Fumigation areas for Containers, Break Bulk Area, the Facility will also be licenced as a Bond & Quarantine Facility as well as being a few hundred metres from the Container Terminals.”
“This is only part of our strategy for our future and the Port of Brisbane has enabled us to make this work, we look forward in working with the Port of Brisbane and all our clients into the long future we have ahead of us.”
PortGate Logistics has engaged Space Frame to construct the facility.
Construction is expected to be completed June 2019.
Savills sell two Bowen Hills, Brisbane properties to 99 Bikes
National bike giant 99 Bikes has spent $5.5 million buying two adjoining properties in Brisbane’s Bowen Hills.
They’re set to consolidate two existing stores in to the one property at 62-66 Abbotsford Road.
Savills agents Gregory Woods and Daniel Pepper negotiated the deal, with 111 enquiries received throughout the campaign.
The new superstore is in replacement of the previous stores located in Fortitude Valley and Windsor, and will also house administration, logistics and warehousing needs for the business.
Woods said the building size and location was ideal for the retailer, with the high level of exposure a major draw card.
“We had originally taken the property next door to market, with 99 Bikes inspecting the facility, however they expressed a need for a larger space.
“Fortunately, the seller also owned some adjoining properties which is what prompted the sale of 62-66 Abbotsford off- market,” Mr Woods said.
The properties are situated on a total 2,028sq m site, achieving a rate of $3,309 per square meter by total building area of 1,662sq m.
Pepper said owner occupiers continue to be attracted to Bowen Hills, due to its underlying land value and future development potential.
“Evidenced by the significant enquiry we received throughout the campaign, we are seeing an increased interest in Bowen Hills due to the significant price disparity between neighbouring suburbs such as Newstead,” Mr Pepper said.
Managing Director of 99 Bikes, Matt Turner, said the new store is set to open on Thursday 20 June 2019, with the online warehouse up and running from the new location now.
“When the store opens there will be an extended range with express click and collect from the online store,” Mr Turner said.
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