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.
Shayher Picks Up QIC’s Landmark Q&A Centre for $395m
Taiwanese-backed developer Shayher has exchanged contracts with QIC for its flagship Q&A Centre in Brisbane’s CBD, less than a month after it emerged as the buyer of the 20-hectare Bulimba Barracks site.
The deep-pocketed developer forked out $395 million for the twin-tower asset, which comprises the 24-storey 141 Queen Street and 10-storey 140 Elizabeth Street.
The two towers make up the last straight office asset in QIC’s flagship property fund after its $1.48 billion divestment of the 80 Collins Street precinct.
Shayher, which has ties to Taiwan’s Par Jar Group, is developing the triple-tower Brisbane Quarter on the former Law Courts site in George Street and is also undertaking the $1 billion redevelopment of Melbourne’s Pentridge Prison.
The group also recently secured two campus-style buildings in Sydney’s inner west and is rumoured to have paid around $90 million for the historic Bulimba Barracks site.
The prize Q&A asset, which occupies a 3,692sq m site on Australia’s busiest mall, drew interest from Charter Hall and Brisbane’s Marquette and its US funds manager partner Hines, before Shayher entered due diligence in September.
In listing the asset, QIC said that the divestment of the Q&A Centre was part of its strategy for the QIC Property Fund. The group also sold out of the Sydney’s MLC Centre in 2017.
QIC Global Real Estate managing director Michael O’Brien said that the divestment of the asset was in line with fund’s investor-endorsed strategy.
“This transaction follows the sale of Noosa Civic Shopping Centre last month, as well as the highly successful sale of 80 Collins Street in Melbourne and MLC Centre in Sydney in 2017, with Q&A Centre the last predominately office asset remaining in the fund,” O’Brien said.
The asset is 79 per cent leased with a 2.7 year weighted average lease expiry by income.
The expressions of interest campaign run by JLL’s Seb Turnbull, Jacob Swan and Luke Billiau and Colliers’ Lachlan MacGillivray, Don McKenzie and Jason Lynch, closed in mid-September.
The sale of the Q&A Centre comes shortly after 130 Queen Street—across the busy Queen Street and Albert Street intersection—changed hands in September for $77 million.
In other recent Brisbane CBD transactions, Dexus has reportedly snapped up the Hermes-tenanted 171 Edward Street from Aria Property Group in a $80 million-plus deal, while Malaysian investor HCK sold a B-grade building at 116 Adelaide Street for $30 million to a local group.
The Shayher Group declined to comment on the deal.
Development Site in Caloundra Hits Block
Multiple commercial properties on the western end of Caloundra’s Bulcock Street have hit the market.
Spread across ten separate titles, the properties are located at 130-140 Bulcock Street, with frontages to both Bulcock Street and Maloja Avenue.
CBRE’s Rem Rafter and Brendan Robins, appointed to manage the expressions of interest campaign, said the Sunshine Coast Council has allowed relaxed height restrictions and the potential to develop a 13-storey project, subject to approvals.
“The Caloundra Centre Master Plan typically dictates a 25-metre height limit,” Rafter said.
“If properties are amalgamated, and a developer proposes a minimum four-star hotel or a vertical retirement facility, buildings can be as high as 40-metres.”
Price guidance for the 2,830sq m site is in excess of $5 million, according to industry sources.
South of Brisbane, the Acacia Ridge Hotel has hit the market with price expectations of around $35 million.
Balmoral Hospitality Group, led by Joel Fisher, are divesting the large format hotel after snapping it up for $26 million in 2017.
The hotel, comprising 45 Electronic Gaming Machines, 34-room accommodation, and a drive-through bottle-shop, spans a 18,450sq m corner block at 1386 Beaudesert Road, around 17-kilometres from Brisbane CBD.
HTL Property’s Glenn Price, Andrew Jolliffe and Dan Dragicevich are leading the sales campaign.
Closer to Brisbane CBD, Silverstone Developments has snapped up the former International Hotel site in Spring Hill.
The former Spring Hill pub closed earlier this year.
Silverstone’s Managing Director Troy Daffy said the building is likely to be repositioned with retail or medical users in the near future, with a long-term play of a larger medical or commercial development given its proximity to the St Andrews War Memorial Hospital.
CBRE’s Darren Collins and Paul Fraser negotiated the sale of the corner property on a 1,745sq m site at 525 Boundary Street.
The $5 million purchase follows adds to Silverstone’s pipeline of Brisbane fringe projects. In August, Silverstone secured a deal with the Queensland government for the redevelopment of the PCYC and and a 12-storey commercial development, at 458 Wickham Street, in Brisbane’s Fortitude Valley.
Investec Lists Fortitude Valley Office Tower
The newly-listed Investec Australia Property Fund will divest its 11-storey Fortitude Valley office building with an expected price north of $90 million as it moves to recycle capital.
Fresh off the heels of its fully underwritten institutional placement and purchase of three industrial properties in the Northern Territory, Western Australia and South Australia for $84 million last month, Investec has motioned to sell its Brisbane, 757 Ann Street, tower.
Investec purchasted the Nettleton Tribe-designed tower for 68.5 million after it was completed in 2014.
Comprising 9,422sq m of office space with a weighted average lease expiry of approximately five years, the A-grade building, anchored by technology company Asea Brown Boveri, is 100 per cent leased.
Cushman & Wakefield’s Mike Walsh and Peter Court are managing the international expression of interest campaign, to kick off mid-October, with expectations it will generate strong interest from domestic and off-shore institutions, funds and syndication groups.
“The entire commercial component of the asset is structured on a net lease basis, providing smooth, predictable cash flow for investors,” Court said.
Sales over the first half of the year surpassed the total volume of sales over 2018—reaching $1.2 billion, according to Colliers research, with Australian institutional investors dominating the lion share of transactions.
Commercial assets currently on the market include Perth-based investor RG Property’s 410 Queen Street in Brisbane’s ‘golden triangle’.
Recent Brisbane assets changing hands include the sale of the Jubilee Place Office development at nearby 470 St Pauls Terrace to a real estate fund managed by Credit Suisse, Malaysian-backed HCK’s 116 Adelaide street for $30 million, and QIC’s Q&A Centre at 141 Queen Street and 140 Elizabeth Street which sold to Taiwanese developer Shayher Group.
As for development plans in the Fortitude Valley precinct, Sydney fund manager Millinium Capital in August announced plans for a new university campus and 30-storey tower that would comprise student accomodation, co-living and co-working space at 240 Brunswick Street and 11 Overells Lane.
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