Attention Turns To Brisbane As Compression Yields Reach Their Peak

Brisbane’s commercial property market is expected to rise on the radar of investors over the next two years as yield compression reaches its peak in Sydney and Melbourne.

CBRE Head of Research for Australia Stephen McNabb said strengthening drivers in the Brisbane economy, coupled with an attractive yield spread, would drive an increase in investment over the coming years.

“The gradual improvement of Queensland’s economy, which has been gaining momentum over the past 12 months, is making Brisbane look more attractive – particularly given the yield in prime assets of 6% – 6.5%," he said.

"Office vacancy is forecast to drop below 10% by the end of 2019, which will support rental growth and ultimately yield compression.

“As the Sydney and Melbourne markets reach their peak in terms of yield, investors are looking for new locations – in particular markets that offer a higher yield spread,” Mr McNabb said.

CBRE recently held their annual Brisbane 'Market Outlook' presentation, which included the insight of a panel of senior CBRE figures who commented on how the continued outperformance of Australia’s south east property markets had compressed yields to their tightest levels.
Bruce Baker - Executive Managing Director of Pacific Capital Markets
Mr Baker said Brisbane was well positioned to capitalise on a shift in the investment cycle over the next two years.

“When capital pours into a strong market like Sydney, which is reaching its limit in yield compression, it starts to point to alternative markets that offer attractive yield spreads such as Brisbane,” Mr Baker said.

“A recovery in Brisbane’s office occupier market will further support the attraction of capital, in addition to an increasing population lending itself to a sustained economic recovery.”

Matt Lawrence –Senior Director of Capital Advisors
"For most borrowers, debt had become more important to their purchase and investment decisions given the current tight lending conditions and low for longer outlook. Australian Banks are facing a number of constraints at the moment in terms of capital costs and limits, resources and APRA focus on their property exposures.

"Australia is unique in the market share that domestic banks have in terms of property funding so these constraints have a large effect on the market. The constrained conditions, particularly for development funding, are creating opportunities for alternative lenders. Importantly many of these groups have a different capital model than the domestic banks.

"This allows funders to provide loans with a longer tenor or a different risk/return profile than Australian banks.

“We are seeing a significant increase in offshore lender appetite for Australia - often for the same reason that equity investors are attracted to Australia. These funders are in a position to grow their lending books and provide a more diverse range of loan products than domestic banks."
Nicole Fitzgerald – Services Director of Workplace
"In an environment of relatively limited growth, property owners needed to seek out opportunities to optimise their portfolios, taking into account the importance of placemaking and customer service.

“It’s about creating places people enjoy and more importantly want to return to. Places that help people manage their work life balance. To provide that point of difference, property owners need to think beyond end of trip and gym facilities – they need to get a lot more creative.

“We create real value in our assets by providing focus on the experience and service offering. For example, in September and October landlords might want to partner with tax agents for two weeks to provide a tax return service within the building. It’s still paid for by tenant employees, but you have facilitated the convenience – you have helped make their work life balance easier. It’s about reducing the impact of distracting, mundane tasks, so that people can focus on their work when they are in the office, or spend time with their family and friends in personal time.”

Mark Curtain –Senior Director of Advisory & Transaction Services
“For a long time the responsibility sat with occupiers to provide collaboration zones and additional amenities within the tenancy NLA. Landlords have now taken up this challenge and are offering a wide range of services and amenities to ensure the needs of their occupants from early in morning until late at night are catered for.

“Major corporate organisations want to provide their people with a workplace experience that offers the same benefits as a five-star hotel. This includes a comprehensive food and beverage offering, gymnasium, conference facilities and personal concierge. Importantly, these services and amenities enhance productivity, and provide settings for people to collaborate and recreate within the work environment.

“Grocon/DEXUS’ recently completed 480 Queen Street is a great example of this in practice offering 11 different food and beverage options, childcare, rooftop entertainment terrace and gymnasium.”