Residential values to rise 5%-10%, domestic buyers to drive the office market and owner occupiers to become increasingly prevalent in the industrial sector
Brisbane is on track to record relatively strong growth in residential values this year, in the order of 5%-10%, buoyed by a potential stock shortage.
This is one of the key take-outs from CBRE’s national 2020 Market Outlook report, which highlights a range of positives for the Queensland economy. This includes a looming undersupply of housing stock, which will see residential price growth accelerate, lifting consumer confidence.
CBRE’s Head of Research, Australia, Bradley Speers noted; “Other positives for Queensland include a forecast pick-up in non-residential construction and the fact that retail trade appears in better shape than most other states, although the Queensland market won’t escape the impact of the coronavirus, which will reduce global growth in H1 2020.”
CBRE’s report highlights that Brisbane’s residential vacancy is the lowest of the four largest capital cities, and dwelling approvals and construction starts are more than 40% lower than the recent peak.
“We envisage a potential shortage of residential stock by 2021, and strong growth in rents and values until then,” Mr Speers said.
On the office front, the report notes that the Brisbane office sector remains an attractive value proposition compared to Sydney and Melbourne, despite an increase in land tax for offshore investors.
“Brisbane office yields haven’t compression as much as Sydney and Melbourne and thus represent relatively good value, particularly in light of the more favourable outlook for Brisbane rental growth in 2020,” CBRE’s Pacific Head of Capital Markets – Office, Flint Davidson said.
“While we expect investor demand to be predominantly driven by domestic capital given the new tax surcharge, we’re continuing to field considerable interest from foreign buyers given Brisbane’s positive underlying market fundamentals.”
This includes two solid years of net office absorption, well above the 10-year average. However, the report notes that while the public sector and coworking providers have been the dominant sources of net absorption since 2017, demand from these tenant groups is expected to soften in 2020 and professional services will become the main driver of net absorption.
Turning to the industrial sector, the report highlights that owner occupiers have become more prominent in the Brisbane market – a trend which Queensland Industrial & Logistics Director Mark Gilbride expects will continue given the current low interest rate environment.
“Owner-occupiers are growing in number given the low interest rate environment, which is making mortgage repayments cheaper than market rents,” Mr Gilbride said.
“This trend will continue in 2020 and could even accelerate if borrowing costs fall further, as we expect, with CBRE anticipating two further cuts to the base rate in 2020. As a result, logistics yields in Brisbane will likely compress a further 25-40bps.
The report also highlights that industrial land supply has become limited in many of Brisbane’s industrial precincts, causing values to continue to rise by ~45% over the past five years.
On the retail front, the report notes that trade growth in Queensland outperformed all other states for most of 2019.
With ongoing strong population growth and a resurgent residential sector, Queensland is expected to again be a top performer in 2020.
However, CBRE’s Head of Retail Advisory, Graeme Wakefield, noted; “As retailers continue to rationalise their physical store footprint, it is expected 2020 will see more unique retail spaces open that will provide increased foot traffic, especially from younger, tech savvy consumers. Increased pressure on household incomes may see owners reduce their reliance on food and beverage retailers and instead look to online retailer pop ups and entertainment.”
Mr Wakefield added: “Retailers will also need to ensure they effectively link their digital and physical store strategies to ensure they keep pace in a market which is increasingly geared towards lifestyle purchases and services. 2020 is shaping up to be a year of opportunity and change and retailers who are focused on creating an experience will continue to grow and thrive.”
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CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2019 revenue). The company has more than 100,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 530 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.