Vacancy is falling and rents are lifting in Brisbane’s fringe office market amid jobs growth and a turnaround in tenant activity resulting in tightening supply.
After a number of years of relatively poor market conditions, the fringe office leasing market is now back on track with strengthening rents and lower vacancies, with engineering, IT and property businesses dominating leasing activity.
According to commercial real estate agency Knight Frank prime effective rents grew by 8.2 per cent in the year to April 2019 with the absence of any major new supply for the following 12 months will allow vacancy to fall to 11.2 per cent by mid-2020.
The inner-south office precinct remains as the tightest office market in the region with vacancy rates of 10 per cent, with the forecast supply holding steady over the next 12 to 24 months with limited near-term supply on the horizon.
“Effective rental growth of 4 per cent per year on average is expected over the next two years as conditions improve,” Knight Frank partner office leasing Shane Van Beest said.
Queensland and Brisbane’s economic growth is now set to outperform the southern states due to population growth, infrastructure investment and exposure to export industries.
“This will result in employment growth, which will assist to accelerate rental demand in the fringe office market, with Brisbane employment within core office industries estimated to grow by 5.73 per cent during the 2018-19 financial year,” Van Beest said.
“Public administration and professional, scientific and technical services expected to have the greatest growth.”
Van Beest said net absorption in the Brisbane fringe office market over the first half of 2019 is forecast to be double the levels seen in the second half of 2018 at 24,500 square metres.
“On the ground, the market feels a lot tighter than the figures actually suggest with strong tenant enquiry and activity.”
“Already contiguous space over 4,000 or 5,000sq m is very hard to find in the near city which is a sign that the market could tighten up quicker than most people expect.”
“There has been steady take-up throughout the year with tenants new to the market a welcome boost.”
Tenants such as WSP, Southern Cross Media, DXC, Downer Defence, Ladbrokes and CPB Consortium have taken up space; these were either new to the fringe or consolidations from other precincts.
Record investment in Brisbane’s fringes
Knight Frank head of commercial sales Christian Sandstrom said there was record investment in Brisbane’s fringe office market, reflecting the greater interest in Brisbane as an investment destination.
“In the 2019 financial year transactions totalled $1.048 billion, and a number of further sales are likely to complete prior to the end of the financial year,” Sandstrom said
“The dominance of purchasing activity by domestic funds has continued in the 2019 financial year, with $805.1 million of transactions in the year to date.”
Offshore funds accounted for 42 per cent of purchasing activity in both the 2017 and 2018 financial years, the activity of major domestic listed and unlisted funds has restricted this to 26 per cent in the current financial year.
Fringe prime yields continued to tighten, down a further 35 basis points over the past year and remained firmly on a tightening cycle, with median yields down 35 basis points over the past year and 260 basis points in this cycle.
Sentinel Sells Brisbane Industrial Site for $17m
Sentinel Property Group has offloaded another Brisbane site, this time an industrial facility 11 kilometres east of the Brisbane CBD in Hemmant for $17 million.
Centuria Capital snapped up the partially tenanted property in Brisbane’s east through Blue Commercial managing director Gary O’Shea.
The site, which comprises 47,951sq m of general industrial zoned land and features an 11,785 warehouse and 1,240sq m of office space, is located within the Trade Coast Precinct at 46-68 Gosport Street.
Sentinel’s Industrial Trust purchased the property for $16 million in 2012.
Sentinel’s divestment follows on from its recent sale of the Citilink Business Centre at Bowen Hills for $76 million to Prime Super.
The group also purchased the Makerston House office building in Brisbane CBD’s legal precinct for $103 million from investment management company Challenger.
Along with the Brisbane transactions Sentinel managing director Warren Ebert said the group, established by Ebert in 2010, has been active in regional Queensland.
“Particularly in Mackay where our portfolio is approaching $100 million,” Ebert said.
“Mackay has been an important regional market in the national growth and success of Sentinel over the past decade and the company has tremendous confidence in the region’s economic future, particularly with the opening up of the Galilee Basin with Adani’s Carmichael coal and rail project finally approved.”
Melbourne Top Investment Choice for Chinese Buyers
Chinese buyer enquiries for residential property in Australia has recorded two consecutive quarters of year-on-year growth for the first time since 2016, with Melbourne still the most popularAustralian city.
Australia has been losing Chinese buyer interest to other parts of the world due to increased taxes and banking restrictions.
But Australia’s hefty state foreign buyer taxes have been counterbalanced by its weakening dollar according to the latest Juwai.com report, which has seen it drop around 11 per cent of its value against the Chinese Yuan since mid-2018.
Juwai.com CEO Carrie Law says she expects Chinese buying to remain flat in 2019, with forecasts it could start to grow again inline Australia’s property market recovery.
“Chinese buyers make 83 per cent more enquiries about acquiring Melbourne property than they do Sydney,” Law said.
Brisbane has the second fastest rate of Chinese buyer growth. Law said Brisbane recorded 30.8 per cent more Chinese buyer enquiries in 2018.
“Brisbane is becoming a real alternative for the two traditional gateway cities of Melbourne and Sydney.
“The fastest growing cities, in terms of Chinese buyer interest, are Hobart, Brisbane, and Canberra.”
Melbourne receives 43.8 per cent of Chinese buying enquiries in Australia, Sydney 23.9 per cent, Brisbane 10.1 per cent, Perth and Adelaide 6.1 per cent, the Gold Coast 3.7 per cent, Canberra 3.6 per cent, and Hobart 2.6 per cent.
Weak Aussie dollar boosts buyer interest
Despite the tougher state foreign buyer taxes, Australian’s weakening dollar means it now costs less to secure real estate.
“A buyer holding Yuan today needs the equivalent of $88,800 less in funds compared to 2017 to purchase an $800,000 dwelling,” Law said.
“The plummeting Australian dollar, which has lost 11.1 per cent of its value against the Chinese Yuan since July 2018… [That] compares to the 8 per cent rate of the highest foreign buyer taxes, which are in New South Wales and Victoria.”
Law says Chinese demand is driven largely by growing wealth, a desire to store assets ‘safely’ overseas, education, travel, commercial ties, immigration and high-net-worth immigration, along with environment and lifestyle.
“Eighty-three per cent of Chinese consumers cite education as their reason for immigration, 69 per cent cite environment, 57 per cent cite food safety, and 28 per cent cite asset security.”
Australia’s Most Expensive Capital City to Rent a House Might Surprise You
When it comes to the nation’s most expensive capital city to rent a house, Sydney takes second place in what may come as a surprise to some, with Canberra crowned as Australia’s most expensive capital.
While Domain’s rental report shows Canberra remains as the nation’s most expensive capital to rent a house, it also shows it’s more expensive to rent a house in Hobart than Melbourne.
The latest report, which covers the median rental price for houses and units across the country, shows Melbourne house rents remained unchanged over the year at $430 per week, while unit rents increased 2.4 per cent over the year.
Taking in the unit market, despite Sydney’s price falls of almost 5 per cent over the year the harbour city is still the most expensive capital city to rent a unit.
Strong construction of new housing has weighed on rents in Sydney, and also contributed to the vacancy rate increasing to 3.2 per cent in June, up from 2.4 per cent one year ago, Domain’s Economist Trent Wiltshere says.
House rents fell by 3.6 per cent over the year to $530 per week.
While unit rents dropped by 0.9 per cent in the quarter and 4.5 per cent over the year.
“Rents held up the best on the Central Coast and on Sydney’s north shore, but fell in other Sydney regions,” the Domain report notes.
While largely thanks to the significant property price falls over the past few years, Sydney’s rental yields have risen slightly.
Melbourne’s strong population growth since 2013, averaging an annual 2.6 per cent, has seen ongoing rental demand.
House rents grew fastest in the Mornington Peninsula and in Melbourne’s inner-south, but were unchanged in Melbourne’s eastern suburb, for the past year.
Melbourne’s unit rents have increased by 2.4 per cent over the year.
While rent on a typical unit has increased 14 per cent over the past five years to $420, despite the city’s apartment construction boom during this time.
Melbourne’s house rents have also increased 13 per cent during this period.
Domain says unit rentals have held steady in recent years, despite the large supply of new Brisbane apartments.
“House rents were steady in most parts of Brisbane over the past 12-months, but unit rents increased 6 per cent in the inner city.”
Unit rents also increased by 2 per cent on the Gold Coast and the Sunshine Coast.
And while rental prices for houses across Greater Brisbanerecorded falls in the June quarter, rental prices have remained unchanged year-on-year.
Brisbane’s rental vacancy rate fell from 2.6 per cent to 2.2 per cent over the past year, a sign of a strengthening rental market, Wiltshere says.
House rents in Adelaide dropped 1 per cent in the June quarter, but have recorded an increase of 2.7 per cent over the year.
Adelaide’s unit rentals have increased by 1.7 per cent over the year, with the typical unit renting for around $305 a week, this makes Adelaide the cheapest across all capitals.
Hobart remains the fourth most expensive city to rent a house behind Canberra and Sydney, according to Domain’s report.
Canberra house rents dropped 3.5 per cent in the June quarter, but are unchanged over the year at $550 per week. Unit rents increased by 4.4 per cent over the year, sitting at $470.
Canberra unit rents have increased a staggering 18 per cent over the past three years, despite an apartment construction boom.
And Darwin rents for houses have now dropped from the 2014 highs of $700 a week to $490. Darwin units have dropped over the past five years from $570 to $385, reflecting declining demand as the city’s population decreases.
Perth remains the most affordable capital city to rent a house in Australia at $365 a week. Rental prices for both Perth houses (up 4.3 per cent) and units (up 3.3 per cent) have increased over the past year.
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