In the lead-up to our Insights Series Brisbane Event on the 23rd June 'Up, Down or Through the Floor: Where Are Development Site Values Heading?', The Urban Developer sat down with Mike Walsh, Director and the Head of CBRE’s market leading Brisbane Metropolitan Sales and Investments team to gain an insight into the impacts, demands, and outlook on where Brisbane development site values are heading.
What are the biggest factors impacting the value of sites in Brisbane for the next few years?
As we know, fundamentally there are 4 primary trigger points for a developer when assessing the viability of a site being:
At present, these are all being adversely impacted and therefore affecting the ‘value’ of sites in the short term. Forecasting out for the next few years is challenging given the speed in which the market’s dynamics are changing, but I’d suggest we will have a better handle on where the site market in Brisbane is truly heading by the end of this year.
The market is clearly in a period of regulation primarily driven by construction prices, mooted supply pipeline & bank funding which needed to occur after a period of intense transactional activity. However, this cooling phase is occurring from a historically high base so the recalibration underway needs to be viewed in context.
Construction prices will ultimately come back from a recent spike. As existing projects get developed and certain proposed projects get scrapped or land banked for the next cycle, we will start to obtain greater visibility as to actual apartment delivery as opposed to projections based on approvals.
In short, we recognise the development site market in Brisbane is facing some headwinds, many of which remain unknown at the present time, but still see great opportunity in certain segments of the market.
Ultimately, sites underpinned primarily by local Brisbane buyers which can include:
Additionally the recalibration of the market will present some unique counter cyclical buying opportunities which we expect astute local groups to try acquire, particularly if there is the ability to generate income from a site.
Outside of specific development opportunities, we also see opportunities for short term development funding with potential high return profiles for equity rich investment groups and/or high net wealth privates to step in and fill the current void left by major banks (assuming the sponsor and project is right).
I believe the area surrounding Stones Corner / Coorparoo within the inner-south is set to undergo huge rejuvenation courtesy of major catalyst projects such as Wee Hur’s 154,000sqm mixed-use project at Buranda and Honeycombes $252m Coorparoo Square project, both of which will provide huge impetus to already these precincts and those suburbs that surround.
Where do you see the market heading? Should we be believing all of the hype and headlines about dramatic changes to funding?
As an agent, being at the coalface of transactions places us in a unique position to see market trends unfolding before they transpire and more importantly look beyond the negative headlines.
Whilst there is a saturation of commentary around a declining cash rate and ‘cheap’ cost of capital, of more importance to note is the increasingly restricted availability of debt. The funding environment is undeniably challenging and has (or will) put a pause on projects, but this is not necessarily a bad thing and is also not isolated to just the development space. The challenges of the debt market have been apparent in the apartment and site market for a little while now, however we are starting to see early signs of this filtering through to the commercial investment market.
We are noticing site values (or more so vendor expectations) come back from cyclical peaks which has allowed alternate use groups, such as vertical retirement to now consider these opportunities as they become more feasible for their use. In 2015 it was the year of Student Accommodation and in 2016/2017 we could be at the other end of the spectrum with Vertical retirement projects inner-city!