Queensland is nearing the end of a 30-year growth cycle, with the health care and tourism sectors emerging key economic drivers as the state transitions from its mining base.
That was one of the key outtakes from CBRE’s Brisbane Metropolitan Investments Market Outlook Breakfast, which forecasted a ‘landing point’ of mid-2017 for the end of Queensland’s current economic cycle.
Hosting the firm’s annual event, which attracted more than 140 guests, CBRE’s Brisbane head of Metropolitan Investments Mike Walsh highlighted the changing dynamics of Queensland’s commercial property market.
“Now, more than ever, proactive asset management and market awareness is simply critical for owners to adapt to changing market conditions and accordingly drive the growth and performance of their investments,” Mr Walsh explained.
Commenting on the development site sector, Mr Walsh said while the market was in a cooling phase, a measured view beyond the headlines was required.
“It’s no secret the Brisbane site market is facing some headwinds at present and this point in the cycle was always coming, it was probably just the speed at which it turned that caught most people off guard,” Mr Walsh said.
“The softer conditions we are now operating in follow a period of intense transactional activity and therefore needs to be viewed in context. “
Australian Head of Research Stephen McNabb said Queensland was in transition mode, with the state nearing the bottom of the cycle and adjusting to a lower level of growth.
“Queensland is a very diversified economy, which positions it well for future growth. Health care and tourism are among the fastest growing industries in Australia, and Queensland is well positioned to capture that flow.”
Mr McNabb said a significant increase in the number of Chinese tourists to Australia was helping boost the economy.
“We’ve seen a big shift in the mix, with growth in Chinese tourism offsetting a decrease in the number of Japanese tourists to Australia since 2008,” Mr McNabb explained.
“That’s important because the average Chinese tourist spends approximately $6,500 per visit to Australia – compared to our next largest tourism group, the UK and NZ, which spend closer to $2,000 per visit. A jump in domestic tourism, supported by the lower Australian dollar, is also providing an economic boost.”
Commenting on the office market, Mr McNabb said while vacancy in the Brisbane CBD was expected to peak at 19% this year, growing demand from health care and IT would help to redefine the tenancy mix in both the national and Brisbane office markets going forward - in addition to a return to normal growth in government, business and financial services
“Health is forecast to be the second fastest growing industry in the Australian economy over the next five to 10 years,” Mr McNabb explained.
The Market Outlook event included an in-depth sector by sector presentation by CBRE experts – key points from which are summarised below.
CBRE Brisbane Office Services Manager Michael Skarparis
The medical and IT sectors are emerging as the two biggest growth industries in Brisbane’s office market, CBRE’s Michael Skarparis said.
“With an ageing population, medical services providers and suppliers are driving organic growth and office absorption in the market.
“They’re taking space everywhere – we’re not just seeing them lease space in one specific location, they’re driving demand in pockets across the city fringe market – and this will only continue to gain momentum.”
Although still a relatively small component of the tenancy mix in Brisbane’s office market, the IT and technology sector is one of the fastest growing industries and will become a major occupier in the Brisbane market, Mr Skarparis said.
“The state and federal governments are really putting an emphasis on funding and creating incubator/co-working environments for entrepreneurs to really thrive in, which is further driving demand in the character market,” he explained.
CBRE Brisbane Metropolitan Investments Director Peter Court
CBRE’s Peter Court said Brisbane was benefitting from unprecedented levels of offshore investment on the eastern seaboard, with priced out buyers seeking more attractive yields interstate.
“While there has been a retraction of offshore interest in Brisbane, we’re seeing a flow on effect from the record volumes of foreign buyers entering the Melbourne and Sydney markets,” Mr Court said.
Most of the interest is coming from interstate, with well leased assets continuing to be the most sought after from both private and institutional groups.”
Commenting on opportunities for investment return in Brisbane, Mr Court said the Near City market was positioned for growth.
“We’ve hit the cyclical point of vacancy in the Near City market, with vacancy trending down and providing scope for rental growth,” Mr Court said.
CBRE Brisbane Metropolitan Investments Director Mike Walsh
Mr Walsh said Brisbane’s development site market is clearly in a cooling phase, but urged a measured view beyond the headlines.
“It’s no secret the Brisbane site market is facing some headwinds at present and this point in the cycle was always coming, it was probably just the speed at which it turned that caught most people off guard,” Mr Walsh said.
“The softer conditions we are now operating in follow a period of intense transactional activity and therefore needs to be viewed in context. “
He noted the market hadn’t completely switched off and there was still healthy demand for certain opportunities.
“There continues to be strong demand for sites that are fundamentally underpinned by local apartment buyers, in addition to sites with strong holding income or the ability to drive income from existing improvements affording developers flexibility with delivery.”
CBRE Capital Advisors Senior Director Matt Lawrence
Mr Lawrence said the banks were facing some challenges in terms of capital costs and capacity in terms of property funding – and subsequently focusing on core customers and lower risk exposures.
“Whilst there has been a significant growth in commercial property lending over the past two years, further growth is likely to be more restrained as banks focus on return ROE rather than revenue growth,” Mr Lawrence said.
“Constrained conditions, particularly for development funding, have created the opportunity for alternative lenders - both domestic and offshore - to fill the gap.
“Many of these groups have a different capital model than the domestic banks. As a result, they are in a position to grow their lending books and provide facilities with different terms or longer tenor than domestic banks.”
Mr Lawrence said there was considerable interest in Australia from a property debt perspective.
That was one of the key outtakes from CBRE’s Brisbane Metropolitan Investments Market Outlook Breakfast, which forecasted a ‘landing point’ of mid-2017 for the end of Queensland’s current economic cycle.
Hosting the firm’s annual event, which attracted more than 140 guests, CBRE’s Brisbane head of Metropolitan Investments Mike Walsh highlighted the changing dynamics of Queensland’s commercial property market.
“Now, more than ever, proactive asset management and market awareness is simply critical for owners to adapt to changing market conditions and accordingly drive the growth and performance of their investments,” Mr Walsh explained.
Commenting on the development site sector, Mr Walsh said while the market was in a cooling phase, a measured view beyond the headlines was required.
“It’s no secret the Brisbane site market is facing some headwinds at present and this point in the cycle was always coming, it was probably just the speed at which it turned that caught most people off guard,” Mr Walsh said.
“The softer conditions we are now operating in follow a period of intense transactional activity and therefore needs to be viewed in context. “
Australian Head of Research Stephen McNabb said Queensland was in transition mode, with the state nearing the bottom of the cycle and adjusting to a lower level of growth.
“Queensland is a very diversified economy, which positions it well for future growth. Health care and tourism are among the fastest growing industries in Australia, and Queensland is well positioned to capture that flow.”
Mr McNabb said a significant increase in the number of Chinese tourists to Australia was helping boost the economy.
“We’ve seen a big shift in the mix, with growth in Chinese tourism offsetting a decrease in the number of Japanese tourists to Australia since 2008,” Mr McNabb explained.
“That’s important because the average Chinese tourist spends approximately $6,500 per visit to Australia – compared to our next largest tourism group, the UK and NZ, which spend closer to $2,000 per visit. A jump in domestic tourism, supported by the lower Australian dollar, is also providing an economic boost.”
Commenting on the office market, Mr McNabb said while vacancy in the Brisbane CBD was expected to peak at 19% this year, growing demand from health care and IT would help to redefine the tenancy mix in both the national and Brisbane office markets going forward - in addition to a return to normal growth in government, business and financial services
“Health is forecast to be the second fastest growing industry in the Australian economy over the next five to 10 years,” Mr McNabb explained.
The Market Outlook event included an in-depth sector by sector presentation by CBRE experts – key points from which are summarised below.
CBRE Brisbane Office Services Manager Michael Skarparis
The medical and IT sectors are emerging as the two biggest growth industries in Brisbane’s office market, CBRE’s Michael Skarparis said.
“With an ageing population, medical services providers and suppliers are driving organic growth and office absorption in the market.
“They’re taking space everywhere – we’re not just seeing them lease space in one specific location, they’re driving demand in pockets across the city fringe market – and this will only continue to gain momentum.”
Although still a relatively small component of the tenancy mix in Brisbane’s office market, the IT and technology sector is one of the fastest growing industries and will become a major occupier in the Brisbane market, Mr Skarparis said.
“The state and federal governments are really putting an emphasis on funding and creating incubator/co-working environments for entrepreneurs to really thrive in, which is further driving demand in the character market,” he explained.
CBRE Brisbane Metropolitan Investments Director Peter Court
CBRE’s Peter Court said Brisbane was benefitting from unprecedented levels of offshore investment on the eastern seaboard, with priced out buyers seeking more attractive yields interstate.
“While there has been a retraction of offshore interest in Brisbane, we’re seeing a flow on effect from the record volumes of foreign buyers entering the Melbourne and Sydney markets,” Mr Court said.
Most of the interest is coming from interstate, with well leased assets continuing to be the most sought after from both private and institutional groups.”
Commenting on opportunities for investment return in Brisbane, Mr Court said the Near City market was positioned for growth.
“We’ve hit the cyclical point of vacancy in the Near City market, with vacancy trending down and providing scope for rental growth,” Mr Court said.
CBRE Brisbane Metropolitan Investments Director Mike Walsh
Mr Walsh said Brisbane’s development site market is clearly in a cooling phase, but urged a measured view beyond the headlines.
“It’s no secret the Brisbane site market is facing some headwinds at present and this point in the cycle was always coming, it was probably just the speed at which it turned that caught most people off guard,” Mr Walsh said.
“The softer conditions we are now operating in follow a period of intense transactional activity and therefore needs to be viewed in context. “
He noted the market hadn’t completely switched off and there was still healthy demand for certain opportunities.
“There continues to be strong demand for sites that are fundamentally underpinned by local apartment buyers, in addition to sites with strong holding income or the ability to drive income from existing improvements affording developers flexibility with delivery.”
CBRE Capital Advisors Senior Director Matt Lawrence
Mr Lawrence said the banks were facing some challenges in terms of capital costs and capacity in terms of property funding – and subsequently focusing on core customers and lower risk exposures.
“Whilst there has been a significant growth in commercial property lending over the past two years, further growth is likely to be more restrained as banks focus on return ROE rather than revenue growth,” Mr Lawrence said.
“Constrained conditions, particularly for development funding, have created the opportunity for alternative lenders - both domestic and offshore - to fill the gap.
“Many of these groups have a different capital model than the domestic banks. As a result, they are in a position to grow their lending books and provide facilities with different terms or longer tenor than domestic banks.”
Mr Lawrence said there was considerable interest in Australia from a property debt perspective.
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ABOUT CBRE GROUP, INC.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
ABOUT CBRE GROUP, INC.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
