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Commercial property sector should batten down the hatches warns CB Richard Ellis

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11 Nov, 2008

 

QUEENSLAND’S property industry faces its biggest year of change in 16 years, CB Richard Ellis has warned Brisbane industry heads.
Speaking at CBRE’s annual Market Outlook breakfast in Brisbane, executive director of research and consulting Kevin Stanley says while Queensland will remain near the top of growth rankings in the year ahead, it remains ‘very exposed’.
 “The diversity of the Queensland economy gives it the growth to keep going, if not on all cylinders,” he says.
“Expect reduced investment activity.
“Cost versus availability of debt will be more conducive to the investment and development market in mid 2009.
“The Brisbane CBD fared better than most during the great sales drought of 2008. (But) it is down dramatically on last year. The current market is driven by smaller secondary sales.
“Until issues with strong credit availability are resolved, this will be the overall trend.”
Stanley says Queensland enjoyed 26 per cent of national office sales in 2008, but following a peak in December last year, it has softened by 90 basis points, dropping capital values by 13 per cent and could fall another eight per cent in the year ahead.
“After three years of specific take up of office space, get set for some lean years,” he says.
“The public sector is largely insulated from global problems, leaving the mining, property and business sectors exposed.
“Expect companies to restructure operations to sub-lease office space.
“Less investors will come into the market and rents will start to fall around the turn of the decade for the first time in eight years.”
Stanley says there will be little sales turnover in the industrial sector in 2008, with industrial yield softening for the first time in 16 years.
“The low rate of rental growth doesn’t look like it is changing any time soon,” he says.
“There is a record 1.3 million sqm in the pipeline for construction next year.”
And in terms of the retail sector, capital values could fall by between five and 20 per cent.
CBRE senior director institutional investments Bill Tucker says there is still a market for good-quality CBD property up to $150 million.
“I think the next 12 months will offer some good buying opportunities for cashed-up buyers,” he says.
“We are entering a rare ‘buyer friendly’ cycle.
“I’m not sure it is going to be fun but it will definitely be interesting to see how this market plays out.”
CBRE director of office sales Campbell Tait says by mid next year, existing stock will be competing against new buildings, providing ‘a new set of challenges’.
“We have been telling people to upgrade and refurbish their product to ensure your building remains competitive,” he says.
“Do not be fooled. Competition is rife among developers all competing for the same tenants.
“Incentives are well and truly back.”
But CBRE managing director for Milton Flint Davidson says world events are “not entirely bad” for the fringe markets.
”There are a significant number of income producing sites which will form the basis of the next commercial development cycle including the Valley, Milton and South Brisbane,” he says.
“Developers should consider keeping some blue sky on the table.
“Purchasers will have plenty of value I the market. We are sitting on a once-in-a-cycle opportunity.”