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Brisbane rents reach record high in December quarter 2020: Domain Rent Report

Brisbane rents

Unprecedented rates of interstate and overseas migration have sparked one of Brisbane’s strongest rental markets in a decade, with the city clocking record-high median prices that, in parts, are outstripping Melbourne.

Rental prices for houses rose by $10 to $425 a week during the December quarter, with units following close behind at $400 per week – up from $395 three months earlier, the latest Domain Rent Report shows.

It’s the city’s second consecutive quarterly price rise, and one that industry experts say could spell the end of Brisbane’s budget property era, with the pandemic-fuelled migration and a soaring property market the key drivers.

Domain senior research analyst Nicola Powell said for the first time in five years it was cheaper to rent a unit in Melbourne than Brisbane, with houses undergoing the steepest annual increase in seven years thanks to those two consecutive quarters of growth.

Brisbane rents

Source: Domain Rent Report, December quarter 2020

“Brisbane gained the most interstate residents than any other capital over the June quarter … the lure of the city is real – from the lifestyle and the climate to the containment of the virus,” Dr Powell said.

“Tenants are (also) seeking liveability, affordability and are no longer tied to a specific location in the work-remote era. Brisbane’s vacancy rate is likely to tighten further in the coming months due to the rising interest from southern states and the flow of residents from regional Queensland into Greater Brisbane.

“This is a milestone because the commentary around Brisbane has been around that heightened unit development … but the city has passed that construction peak, and now we’ve seen that pool of stock decline.”

Dr Powell said the estimated choice of vacant rentals had also dropped by about one third in recent months – a trend that had reverberated out to Queensland’s top lifestyle hot spots, the Gold Coast and the Sunshine Coast.

“House and unit rents reached record highs in the Sunshine Coast and Gold Coast – in fact, they both outperformed Brisbane,” Dr Powell said.

“Gold Coast house rents increased $20 over the quarter and year to $540 a week.”

Brisbane rents

Source: Domain Rent Report, December quarter 2020

Across Brisbane, median rents are up by $15 a week compared to December 2019, with the vacancy rates down by one percentage point over the past 12 months to a tight 1.9 per cent.

It comes as Brisbane emerges from its snap three-day lockdown, with open house inspections limited to 20 people until 1am January 22.

Director of property management at Place Estate Agents Brisbane, Cathie Crampton, said the red-hot rental market led to a record-breaking month for their team during December – with an unprecedented 20 per cent of rentals leased by interstate or overseas tenants.

“Some of those properties were leased sight unseen as well,” Ms Crampton said, adding that the vacancy rate was extremely low.

“We had over 100 groups through one of our recent rental listings … in fact, the demand is so high we’re increasing the rent prices in 35 per cent of our listings.

“[The market] has almost tipped to the edge – there’s just so much demand and no supply. I haven’t seen conditions like these in 15 years.”

While the rental price hike could place pressure on low-income tenants, Ms Crampton said the market was undergoing a necessary price correction, following several years of sluggish growth.

“There were no rental increases, quarter on quarter, for a long time … so it’s an inevitable adjustment,” she said.

“And now we have optimum conditions to increase rent and improve yield – there has never been a better set of conditions in Brisbane.”

Ray White Bulimba and East Brisbane managing principal, Brandon Wortley, said the soaring rental industry had particularly reached new heights in the prestige sector – with houses priced at $1000 or more a week in incredibly high demand.

“There’s a lot of parts to this growth – but in our eyes, it’s the record migration from what we call ‘boomerang renters’,” Mr Wortley said.

“These are people who were originally from Brisbane but who moved abroad to chase a career or life experience … and I think honestly in this period (during the pandemic) they’ve gone ‘holy smokes I’m so far from home right now’ so that’s driving a lot (of our rental market).

“A lot of them have also forgotten a lot about the city, so what they are doing is renting (rather than buying) to test out a neighbourhood for six or 12 months.

“But then there are those who want to buy – to take advantage of the record-low interest rates – but because there’s such a high volume (of people) in this sector, it’s also driving the rental market.

“I think there’s a lot more interest in upper-end rentals than there has been historically … and we’re in that sweet spot right now and I think it will continue for a while.”


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Cromwell Lands Former Flight Centre HQ


Brisbane-based fund manager Cromwell will add the former Flight Centre headquarters at 545 Queen Street in Brisbane to its managed portfolio.

Settlement is imminent for the $117.5 million acquisition being sold by Axis Capital, which bought it in 2017 for $70 million, in a deal that requires Foreign Investment Review Board approval.

The 13,300sq m, A-grade office building is located on a 2735sq m parcel of land at the entrance to the Brisbane CBD’s ‘Golden Triangle’ and has undergone an extensive refurbishment programme.

Hamish Wehl, Cromwell’s head of retail funds management, said the property fit its target profile with 88 per cent of income derived from the federal government, as well as listed or multinational tenant-customers

“The current interest rate environment has made things challenging for investors searching for opportunities that meet their income needs.

“Cromwell is actively seeking additional assets that will help DPF meet its objectives and benefit unitholders even further,” Wehl said.

DPF, which started in 2013, owns seven office and retail assets—in Queensland, New South Wales, Victoria, South Australia and ACT—outright and has exposure to a further three with a total value of just over $1 billion.

Wehl said the fund had been strongly supported by local investors who are paid a monthly dividend averaging 5.8 per cent a year.

The transaction was negotiated by CBRE’s Peter Chapple, Bruce Baker, Flint Davidson and Stuart McCann.

“We have seen a strong increase in buyer demand for high quality, multi-let Brisbane office towers, with long-term investors backing that there will be a flight to quality as tenants seek to upgrade to prime grade CBD and metropolitan office assets,” Baker said.

Brisbane’s renowned Golden Triangle has been subject to a number of high-profile transactions in recent years.

The tower, at 410 Queen Street, sold for $53.5 million to local development and investment group PGA Properties early last year.

Dexus and Canada’s CPP Investment Board also recently sold Brisbane’s 10 Eagle Street office tower for $285 million to Brisbane-based investment manager Marquette Properties.


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Speculators back in the game to push up property prices

property prices

Investors in residential property have come out of hibernation and were the driving force behind the record 5.5 per cent increase in housing finance in March.

Having kept a low profile during the pandemic, investors and speculators are now returning to the market with gusto. And that suggests only one thing – home prices will continue to be pushed higher.

The colloquial definition of what turns a housing boom to a housing bubble is the increasing participation of investors. Judging by the latest numbers from the Australian Bureau of Statistics (ABS) investors could soon replace first home buyers as key drivers of the red-hot property market.

The 12.7 per cent increase in financing to investors dwarfed the (already strong) 5.2 per cent increase in finance to owner occupiers. And the value of those loan commitments to investors is up 54 per cent on March last year.

And the phoenix-like rise in housing investors has coincided with early signs of a peak in demand for finance by first home buyers whose participation in the housing market appears to be running out of steam. In March first home buyer finance fell by 3.1 per cent (seasonally adjusted), according to the ABS.

The levelling out of first home buyer demand was only ever a matter of time as this group would ultimately come up against the barrier of affordability.

Government assistance and low interest rates spurred demand from first home buyers last year but as prices have moved up the window of opportunity has narrowed. Meanwhile, some of the robust demand from those making their first move into property is thought to have been pulled forward.

Investors deserted the residential property market in response to COVID as rents and returns fell as did values in the early stages of the pandemic. The apartments segment was hit particularly hard as immigration disappeared.

While rents remain at historically low levels, there are clear signs that rental increases are starting to come through – particularly in the outer suburbs of capital cities, the smaller capitals and in regional areas. In March rents rose by 0.6 per cent in Sydney and by 0.2 per cent in Melbourne according to CoreLogic

But the broader enticement for investors is capital gains on offer in the housing market, which is now in full swing. Prices nationally rose by 1.8 per cent in April and by 2.8 per cent in March and careered ahead 6.8 per cent over the past three months.

For big banks lenders the return of the residential property investor could provide them a new source of demand growth in the event the first home owner market continues to run out of puff.

Despite historically low interest rates, the banks say they are not seeing any deterioration in the quality of their loan books. This is despite intense competition among bank and non-bank lenders to capitalise on the demand for housing finance driven by low rates.

Westpac’s accounts for the six months to March, which were released this week ,showed that only 2 per cent of customers were behind on repayments – a level that has remained the same for a year.

For the most part the banks are arguing that there is no need to apply any macroprudential brakes to the housing market.

But history tells us the rise in investor participation also sets off alarm bells within the regulatory agencies, the Australian Prudential Regulation Authority (APRA) and the Reserve Bank.

Both have been disinclined so far to wade into the rapidly heating property market and introduce measures that will hamper first home owners. But regulators have plenty of form in targeting the more speculative investor cohort with macroprudential tools. And the banks will need to avoid the riskier lending that has traditionally been associated with financing investors.

’The resurgence in investor financing and the continuing surge in owner occupiers who are trading up points to further near term strength in home prices,” according to AMP chief economist Shane Oliver.

“It also points to a further acceleration in housing debt, a further rise in the share of interest only loans and increasing lending at high loan to valuation ratios. All of which is increasing pressure on the RBA and APRA to move to tighten lending standards in order to head off increasing risks of financial instability – which we expect to occur sometime in the next six months.”



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Cromwell buys in Brisbane and on the hunt for more properties


Cromwell Property Group has confirmed it is buying the former Flight Centre headquarters at 545 Queen St, Brisbane, for $117.5 million.

Hamish Wehl, Cromwell’s head of retail funds management, said the refurbished office building in the Brisbane CBD’s so-called “Golden Triangle” was purchased for its Direct Property Fund (DPF), a retail investment vehicle.

“We are actively looking for further acquisition opportunities,” he said.

“The fund remains open, we’re seeing attractive investment inflows and it’s all about acquiring the right property that suits the return profile of the investors.”

He said DPF has been strongly supported by “mum and dad investors” who are paid a monthly dividend averaging 5.8 per cent a year.

DPF, which started in 2013, owns seven assets outright and has exposure to a further three with a total value of just over $1 billion . All but one – a Bunnings in South Australia – is an office building.

Mr Wehl said office will remain a focus for DPF though there is scope to invest in other sectors, depending on returns.

“We are cautiously optimistic in the current environment and think the office sector as a whole will always be relevant for white collar employment,” he said.

“It fosters innovation, creates and maintains workplace culture.”

He added: “There’s still a bit to play out from last year’s fallout [and] if we see quality property that is attractively priced within the retail and industrial sectors, the fund has the ability within its investment mandate to acquire those assets.”

Cromwell bought the 13,000sq m building – now 100 per cent leased with average weighted expiry of 4.1 years – from Axis Capital, which paid $70 million in 2017 shortly after Flight Centre moved to other premises and left it mostly empty.

Axis Capital refurbished and repositioned the building, leasing it up before selling to Cromwell on a yield of 5.9 per cent.

The sale required Foreign Investment Review Board approval due to the large stake activist investor, ARA Asset Management, based in Singapore, has in Cromwell.

The transaction was negotiated by CBRE’s Peter Chapple, Bruce Baker, Flint Davidson and Stuart McCann.

Brisbane CBD has sprung back to life after the quiet 2020, with at least four other major properties still on the market. Total transaction value this year is expected to exceed $1 billion over the next two months.

The catalyst for the listings surge has been strong post-COVID-19 prices paid for office towers at 10 Eagle Street, which fetched $285 million, and 310 Ann Street, sold to Ashe Morgan for $210 million.


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