While yields tightened throughout 2016, especially in the fast-growing retail sector, many owners preferred to stay on the sidelines as there were fewer investment options. This helped create a market where quality investment stock was scarce. As a result, the office and industrial sectors failed to reach the heights achieved in 2014-2015.
Analysts say next year should welcome the return of patient capital, as experienced buyers look to add value to their new assets rather than rely on historically low interest rates.
Ben McGrath, Knight Frank’s Queensland managing director, said 2016 was challenging, despite strong investor interest in Brisbane from offshore and southern buyers looking for better yields.
“Anything with strong investment fundamentals was selling, and although the volume of sales in office and industrial was less than previous years, the success rate has been high, if not higher,” he said. “The amount of capital that is searching for a secure home at the moment is as great as we have ever seen it.”
Geoff McIntyre, JLL Queensland’s managing director, said there was a prevailing view that yields have bottomed out, which was reflected in the drop of transaction volumes around the world. “We are expecting yields to stay relatively low for a longer period before moving back out,” he said.
This year was the peak of the current CBD office supply cycle, with the completion of 180 Ann St, 480 Queen St, and 1 William St, placing pressure on A-grade and premium markets and pushing vacancies to nearly 17%.
Aside from some large one-off leases, such as Tatts Group’s surprise take up of an extensive new lease in 180 Brisbane, small deals took precedence as many businesses took advantage of incentives of up to 40% to relocate.
While the Brisbane inner-city apartment market performed strongly at the start of the year, borrowing restrictions and a perceived over supply have slowed down the city’s high-rise residential development sector.
There were a number of high profile company collapses this year, and the property sector is bracing itself for the likelihood of forced sales of apartment development sites and receivers being more involved in the market.
McIntyre said 2017 would witness a more disciplined market, with investors reverting to more traditional property strategies. “I think we will emerge next year as a more normalised market which is good for experienced property people who know how to identify value in assets, refurb and grow rents as opposed to being reliant on cap rates going down,” he said.
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