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March 27, 2017

A triple treat of positive economic factors has raised hopes that Brisbane’s office property market is set for a rebound.

Andrew Ballantyne, Head of Research for JLL Australia, says three key factors are likely to boost the Brisbane market in the next few years – housing affordability relative to Sydney; a rebound in commodity prices; and tourism growth on the back of a lower Australian dollar. These elements have the potential to contribute to higher interstate migration and a stronger business climate, in turn creating demand for quality office space in the CBD.

“The Brisbane CBD market is already showing tangible signs of recovery and recorded eight successive quarters of positive net absorption to the fourth quarter of 2016,” says Ballantyne.

Affordability factor
On the housing affordability front, Ballantyne says the spread in dollar terms between Brisbane and Sydney house prices has never been wider.

“This will be a catalyst for a reversal in interstate migration numbers and the movement of people from Sydney to South East Queensland,” he says.

Add rising coal prices and a lower Aussie dollar (it has been trading at about US76c compared with US90c three years ago) to the mix and the impact will be significant for Brisbane.

“Tourism is a growth sector of the Queensland economy and the relative affordability of Queensland is supported by the depreciation in the Australian dollar over the past three years,” he says. “The lower Australian dollar also supports the education sector and increased student numbers to Australia – and Queensland will be a beneficiary of this trend.”

Flight to the CBD
The broad Brisbane office vacancy rate has been hovering at about 17 percent, but vacancies have been varied across the grades, with the CBD experiencing a flight to quality as tenants take the opportunity to upgrade their real estate requirements.

A-grade property has been the major beneficiary of this movement and Ballantyne believes the relative affordability of the CBD will precipitate “a wave of tenant centralisation”.

“Some tenants were priced out of the Brisbane CBD over the past seven to 10 years and will seek to centralise business operations back to the CBD,” he says. “However, it is important that owners remain innovative and seek strategies to differentiate their asset in the market.”

Foreign interest
Overseas buyers are showing strong interest in the Brisbane office markets.

The state economy represents about 19 percent of Australia’s economic output and, while it has underperformed during the past two years, many investors can see that the long-term ingredients of Queensland’s growth remain relevant. Promisingly, Deloitte Access Economics forecasts that Queensland will account for 21 per cent of Australia’s economic output in 2026.

“Offshore investors have underwritten the Brisbane investment thesis and are seeking to gain exposure to the long-term growth story,” explains Ballantyne.

Last year, for example, Singapore-listed ARA Trust Management and Investec increased their exposure to Brisbane.

“We are speaking with a number of offshore investors with a buy-side mandate for Brisbane,” Ballantyne says.

Furthermore, he believes Brisbane offers a cyclical opportunity for investment, with yield spreads between Brisbane and the Sydney and Melbourne markets being significantly wider than historical benchmarks.

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Andrew Ballantyne

Head of Research, Australia, JLL

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