Australia’s commercial property sector defied political upheaval and challenging retail conditions in the first three months of the financial year.
JLL head of research for Australia, Andrew Ballantyne, says strong economies in NSW and Victoria, employment growth and a shift towards e-commerce fuelled a boom in industrial land sales.
Warehouses accounted for a third of sales searches on realcommercial.com.au in the three months to October.
“We have seen very strong price growth for industrial land,’’ Ballantyne says.
“In western Sydney and western Melbourne you’ve got land values up 30-40% over the last 18 months.
“I certainly don’t expect to see that level of growth continuing but I think we’re still trending higher.”
Experts say the market has taken the recent change in Prime Minister and a string of by-elections in its stride, with such instability now considered a norm and long-term political policy a more important factor.
HEADWINDS FOR RETAIL
But the shopping centre sector faces challenges.
REA Group chief economist Nerida Conisbee says: “There are tough conditions for shopping centre owners and strip retail as store closures continue with Max Brenner and Target closures and Myer still struggling.’’
About one in five sales searches and a quarter of lease inquiries on realcommercial.com.au were for retail properties during the last quarter.
“Vacancy rates haven’t really shifted within our major shopping centres,’’ Ballantyne says.
“Where you are seeing the challenge is that rents at an aggregated level aren’t growing. The spread between good quality and poorer quality centres has gotten wider and wider. The number of centres providing zero incentives is increasing and the number providing over 20% is also increasing.”
STRENGTH TO STRENGTH FOR OFFICES
The office sector has been strong, posting nationwide sales of $4.46 billion.
“That’s quite a powerful quarter,’’ CBRE head of office research for Australia, Felice Spark, says.
“In years gone past you might have seen that sort of volume over a whole year in a market.”
Conisbee says technology firms are bolstering the office market.”
“More start-up activity is increasing demand for flexible space and leasing terms,’’ she says.
CBRE forecasts Sydney CBD office vacancies to reach a record low 3.5% by year’s end.
Works for the metro rail project are among the market factors, with the project’s construction permanently removing seven buildings from the city’s office stocks.
Meanwhile, Western Sydney industrial land values for 1ha serviced allotments reached $650 per sqm at Eastern Creek last quarter, up from $340 per sqm at the start of 2015.
“It’s pretty phenomenal growth over a short period,’’ Ballantyne says.
Spark says NSW accounted for half of all office sector sales last quarter based on value - largely due to a superannuation fund snaring a half stake in the landmark $1.7 billion Westpac Place.
Sydney’s major office sales also included a half stake in the $282 million 60 Carrington St site while Parramatta’s Eclipse Tower changed hands for $278 million.
Experts believe the Victorian Government’s focus on infrastructure and speedier subdivision approvals could benefit the market, but next month’s election may prompt a lag on decisions on major projects.
Buyers continue to show remarkable interest in Victorian industrial property, with industrial warehouses making up 37% of Victorian sales searches for the quarter.
Office vacancies are forecast to reach 3% in the coming months, but Spark says demand may begin to taper off midway through next year.
“We’ve probably got another good nine months in Sydney and Melbourne.”
“By the second half of next year we’re forecasting there will be a bit of a downturn. That’s also when the next supply cycle starts to kick in. Melbourne’s getting a tremendous amount of supply coming on.”
Queensland’s economy is showing solid signs of recovery, which people moving from interstate delivering a boost to the market, experts say.
“Queensland has lagged and now we’re starting to see it pick up,’’ according to Ballantyne.
“Really that escalation has been in the last nine months.”
More than 10% of Queensland leasing and sales searches on realcommercial.com.au during the last quarter were for offices.
Brisbane recorded the second-highest value of quarterly office sales transactions nationwide, with seven major sales totalling $1.2 billion.
They included a half stake in Brisbane’s $418 million 62-80 Ann St site while 53 Albert St fetched $252 million.
Vacancies are tipped to fall to 12.3% by 2020.
“That market is definitely improving,’’ Spark says.
Values for serviced industrial allotments at Brisbane’s Acacia Ridge reached $325sqm last quarter, up from $260sqm at the start of 2016.