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By Dan Costello, Associate Director of Industrial Transactions, Ray White Commercial Qld
Brisbane is the engine room of Queensland's post-mining boom economy. It's become a major hub for large national and multi-national energy and technology companies, as well as a centre for research and innovation.
As a result this thriving city's economy is slated for impressive growth in future. Brisbane City Council estimates that it could grow by almost double from $146billion to $217billion from 2016 to 2023.
That makes the area an exciting place to work and invest in. The industrial real estate market in particular benefits from the economies resurgence and there's countless opportunities for buyers of all shapes and sizes - if they know where to look.
A market in a state of change
Brisbane is the engine room of Queensland's post-mining boom economy. It's become a major hub for large national and multi-national companies.
Brisbane's economy has recovered well after the mining boom, diversifying and attracting large national companies to the area. in 2016 there was considerable demand for space in the wider Brisbane region despite the year's uncommonly low sales turnover.
In fact, assets over 5,000sqm only accounted for $325million in the second half of 2016, around 68 per cent less than the same period last year. This limited turnover is the result of two trends. One being that investors in the area are holding on to their properties while interest rates are low, and supply is scarce. Two being the emergence of a lucrative purpose built, pre-committed market in Logan Motorway and the Australian Trade Coast in particular.
Investors are buying up vacant land in the area, building and leasing to large corporations. Rather than selling to cash in capital gains the preference is for long term leases and stable, reliable tenants. This bias for large tenants and pre-committed assets has seen something of an exodus from the more traditional industrial area of South Brisbane towards newer, higher quality assets in Logan Motorway and the Australian Trade Coast.
This is reflected in sales data which shows the Australian Trade Coast accounted for 30 per cent of turnover, and Logan Motorway accounted for 23.54 per cent. The South on the other hand, only saw 23.88 per cent - far lower than it has in past.
Investment yields continue compression
There is increasingly high demand for land for industrial development in Logan Motorway, and the Australian Trade Coast.
There is increasingly high demand for land for industrial development in Logan Motorway, and the Australian Trade Coast due to the trends described above. There's also massive demand for prime stock in those areas which has caused capital values to increase and investment yields to stagnate and even decrease.
Yields in Logan Motorway have continued their decline to average at 7.45 per cent over 2016. That's a 75 basis point decrease in two years. The Australian Trade Coast on the other hand saw a small increase over the same period from 7.25 to 7.3 per cent. The south has also seen consistent falls over the last year.
For larger institutional investors, Logan Motorway may be the area of most interest. Good quality stock is hard to come by here, however the quality of tenants is often high. The south on the other hand is also emerging as an attractive option, despite increasing vacancies. Thanks to the tight supply of industrial real estate in Brisbane investors may be willing to take risks and invest in secondary stock here at a lower price point.
There are opportunities for investors of all classes here in Brisbane - the most important thing, as always, is to go where the tenants are going.
Investors looking outside of city centres
However, finding prime assets is increasingly difficult in these hotly demanded industrial centres.
In future the Logan Motorway area, Brisbane's port and the Australian Trade Coast are set for considerable capital growth and development. These emerging areas have been developed with modern efficiencies in mind - including convenient connections and more modern infrastructure.
As a result they are far more attractive to tenants than older assets and have been drawing large investors and occupants away from the more traditional south Brisbane industrial area.
However, finding prime assets is increasingly difficult in these hotly contested industrial centres. As a result savvy investors have begun looking to regional areas that two years ago were completely flat. If supply continues to be low it's likely that this trend will continue and industrial markets on the fringes of Brisbane will benefit as a result.
The mining boom is past us and the economy is still in recovery. However, current trends indicate that the future of Brisbane's industrial market will be positive - provided demand from investors and businesses continues as it is. What's more capital values appear to be continuing their solid growth, increasing by around 10 per cent on average in the second half of 2016 alone.
Thankfully in the near future the strong industrial property market should continue its strong contribution to Brisbane's economy. What's more, investors and owner-occupiers of all classes will be well served by a fast growing market with countless opportunities available for those ready to take them.
Dan Costello is the Associate Director of Industrial Transactions, Ray White Commercial Qld. Since making his start in real estate in 2000 he's worked in development and real estate services and started his own residential real estate agency before settling on industrial real estate in 2012. Dan thrives when working between the buyer and seller, using his skill, experience and knack for communications to achieve a result for all parties. To make the most of Dan's extensive experience and expertise get in touch with the team at Ray White Commercial Queensland today.
