Some unique challenges and opportunities are emerging in Brisbane’s commercial property market, writes Johann de Beer, Head of Property Management – Queensland at MRS Property.
If I could summarise Brisbane’s commercial property market in one word right now, it would be exciting.
With 40 years of experience in property and asset management in Australia and South Africa — almost 20 of which have been in Brisbane — the past 18 months have certainly provided their fair share of challenges and opportunities for investors, landlords and tenants alike.
But after a turbulent 2020, Brisbane’s commercial property market has emerged in 2021 with more fervour and strength than ever before.
The latest results from the ANZ/Property Council Survey reveal that industry confidence has nearly tripled since the height of the COVID pandemic, proving the resilience of Queensland’s commercial property market, and reflecting Australia’s economic recovery efforts — nothing short of remarkable.
Since joining MRS Property in October last year to establish the company’s footprint in Brisbane, I’ve been privileged to work with a range of clients’ in the retail, commercial and industrial sectors, helping them to manage the ongoing impacts of COVID-19.
In doing so, some key trends and players in the market have emerged.
Strong transaction market
If you own industrial, logistics or manufacturing property and assets, the ball is in your court. Cap rates historically reserved for office and retail assets only are now commonplace across the market.
Record low interest rates combined with a lack of stock and rising demand chasing yield is resulting in strong prices being achieved, especially in the industrial market.
Industrial continues to outperform in the uncertain economic climate, posting an annual total return to Q4 2020 of 13.9 per cent, compared to 11.5 per cent just 12 months ago.
Leasing activity in the industrial market also remains very strong.
Improving vacancy rates
I expect that retail property will be next off the sidelines, hopefully picking up in the near future with the Brisbane City Council’s efforts to entice workers, students and tourists back into the CBD.
There’s no doubt the onset of COVID-19 continues to challenge the CBD, but I believe vacancy rates will improve over the coming year, particularly from a retail perspective.
Whilst CBD occupancy levels are subdued as businesses continue to provide flexible ‘Work From Home’ arrangements, we expect to see office markets pick-up speed again once tenants work through their return to work plans and get a handle on their longer term space requirements.
Despite current vacancy conditions in the office market, we know that good quality real estate, in good locations with strong tenant covenants and limited leasing risk and with a decent WALE, will continue to perform well in the medium to long term.
This means that office assets with these characteristics are still attractive to investors even in the current market climate.
Likewise, good quality retail in the right location will always attract investors, and from a leasing perspective, should improve significantly over the coming year.
Opportunities for landlords
Right now, I’d recommend landlords remain absolutely focused on tenant retention.
If a retail or office tenant vacates in this market, it could be an expensive exercise to bring in a new tenant (once you factor in costs like vacancy downtime, leasing fees, fit-out updates, and of course, incentives), so, keeping your current tenants in-lease for as long as possible makes strong economic sense.
This is where good quality property and asset management plays a key role, by ensuring tenant retention through the provision of excellent service and delivering value to the client, building and tenants.
One of our large clients in Brisbane specifically appointed us to retain their current tenants for this reason, which we have been able to achieve by engaging with the tenant at an early stage, meeting the market, setting realistic targets for both landlord and tenant — and most importantly, building trust.
With exciting opportunities and challenges continuing to abound within the Brisbane commercial property market, I cannot stress enough the importance of having a trusted, reliable and proactive property manager on your team.
At MRS Property, we always manage assets as if they are our own and take a thoroughly holistic approach to real estate management, focusing on quality of service for all our clients.
If you’re interested in learning more about the MRS difference, we’d love to chat.