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.
Fortitude Valley’s GPO Hotel offered to market
The GPO Hotel in Queensland’s Fortitude Valley has been offered to the market through an expressions of interest campaign.
Currently operating as a nightclub it is described in the listing as a “long term lease prospect (4 x 10 years).”
Glen Price of HTL Property is marketing the listing.
Situated at 740 Ann Street the expressions of interest campaign closes on June 5.
The property holds a commercial hotel license.
Sentinel buys Brisbane’s Makerston House from Challenger for $103m
Sentinel Property Group has bought the Makerston House office tower in the Brisbane city centre for $103 million from ASX-listed Challenger.
The deal – the largest to date for the Brisbane-based syndicator – was struck on a net passing yield of 7.85 per cent. It will be held within Sentinel’s Regional Office Trust, which holds nine assets worth more than $350 million.
Makerston House, situated at 30 Makerston Street at the northern edge of the Brisbane CBD, last sold for $38 million in 2000 when Challenger bought it from listed investment company Ariadne.
The tower, offering almost 15,000 square metres of office space, had a book value of $70.7 million as of June 30 last year.
In January, Challenger secured Queensland Rail as a tenant across 2000 sq m to help shore up some of the vacancy.
The deal follows Brisbane recording the largest drop in office vacancy compared to any other state capital in the six months to February, with a drop to 13 per cent from 14.7 per cent, according to the most recent Property Council Office Market Report.
Sentinel Property managing director Warren Ebert said Makerston House was “superbly positioned” at the epicentre of some of the city’s multibillion dollar infrastructure projects, including the $5.4 billion Cross River Rail network and the $2.1 billion Brisbane Live precinct.
“This is a fantastic acquisition for Sentinel and is our biggest purchase since the group started 10 years ago,” Mr Ebert said.
“The building is opposite the Queensland Police Headquarters and just 50 metres from Roma Street train station, the only existing CBD railway station that will link to the high capacity Cross River Rail.”
Established in 2010, Sentinel has a total national portfolio of more than 40 retail, industrial, office, land, tourism infrastructure and agribusiness assets with a total value in excess of $1.14 billion.
Dexus Eyes $100m Sale for Brisbane Retail Centre
Dexus Wholesale Property Fund are looking to offload a 100 per cent freehold interest in Beenleigh Marketplace, a sub-regional shopping centre located 32-kilometres from Brisbane’s CBD.
The 19,476 square metre asset, which last transacted in 2013, is anchored by Woolworths and Big W and spans a 60,680sq m site.
The landholding also includes 4,390sq m of adjoining land earmarked for further development.
JLL head of retail investments Simon Rooney has been appointed to market the expressions of interest campaign amid weak sentiment in the retail property sector.
“Investors are pursuing a low-risk retail strategy at present,” he said.
Rooney said investors were targeting small and mid-sized sub-regional centres with a major focus on retail services along with food and beverage offerings.
“F&B has consistently been the fastest growing retail category over the last five, 10 and 20 years, which underpins solid leasing demand.”
Recent transactions for sub-regional centres include the Rockdale Plaza sale in Sydney purchased by Charter Hall for $142 million last month, Sydney’s Neeta City purchased by Elanor Investors for $85.3 million in March, and Melbourne’s Campbellfield Plaza bought by Charter Hall for $74 million in December last year.
Transaction activity was highest within the $50-million to $150-million bracket for retail property last year.
Rooney said the Beenleigh retail hub outperforms the industry averages with total centre moving annual turnover (MAT) of $113.7 million.
Beenleigh, located in the city of Logan, has a current population of 83,570 which is expected to increase 2.1 per cent annually to 2031.
The expressions of interest campaign closes on June 6.
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