The first partnership between national developer <a href="https://www.apartments.com.au/developers/fortis">Fortis</a> and Adelaide-based developer <a href="https://www.apartments.com.au/developers/otello">Otello</a> has made a strong start, with the pair securing $21 million in unconditional sales at <a href="https://www.apartments.com.au/new-apartments/one-four-four-hutt-adelaide-144-hutt-street-adelaide-sa-5000">One Four Four Hutt</a>&nbsp;on the edge of the Adelaide CBD.

Over a third of apartments have been snapped up in the boutique 44-apartment project on the corner of Hutt Stret and Wakefield Road. Local downsizers and owner-occupiers wanting to remain in Adelaide's tightly-held southeast quarter have been the most prominent purchasers.

The DKO-designed, mixed-use development is one of the few new apartment projects in the precinct, an area where new housing supply has remained limited despite continued demand from buyers wanting to stay close to the CBD, Victoria Park and Adelaide's established east-end amenities.

[smartcode_project:default project_id=151233 project_image_fid=375378]

Fortis Head of Development SA Arthur Dendrinos said the early sales reflected both the strength of the local owner-occupier market and confidence in the Hutt Street location.

"The level of early commitment reflects the confidence local buyers have in the Hutt Street precinct," Dendrinos said.

"Many purchasers are long-term east-end residents who love the area and want to stay connected to the neighbourhood. They recognise the value of a well-designed, well-located development.

"Our partnership with Otello has been central to this success, and the number of unconditional sales at this stage only strengthens our confidence in the South Australian market."

&nbsp;

[smartcode_project:default project_id=151233 project_image_fid=375379]

Otello Director Daniel Harris said the sales result also highlighted the lack of new apartment opportunities within the Hutt Street precinct.

"One Four Four Hutt has clearly resonated with buyers, with strong early sales reflecting both the appeal of the Hutt Street corridor and the lifestyle on offer," Harris said.

"The activated ground-floor retail has also been a key drawcard, with purchasers responding to the vision of a more vibrant and connected streetscape, not just the residences themselves."

One Four Four Hutt will deliver 44 one, two and three-bedroom apartments, alongside a collection of penthouses, above a ground-floor retail offering designed to further activate the Hutt Street precinct.

Construction is scheduled to commence in the third quarter of this year, with completion anticipated in 2028.

[smartcode_project_cta:default project_id=151233]

Fortis Head of Development SA Arthur Dendrinos said the early sales reflected both the strength of the local owner-occupier market and confidence in the Hutt Street location.

Joel Robinson

Fortis makes Adelaide debut with Otello as One Four Four Hutt records strong early sales

For all its prestige, Roseville hasn't seen many new apartment developments that genuinely cater to the suburb's owner-occupier market.

Most new projects on Sydney's North Shore have focused on increasing supply, but Aqualand Prestige's <a href="https://www.apartments.com.au/new-apartments/boronia-by-aqualand-roseville-2-4-larkin-street-roseville-nsw-2069">Boronia</a> is taking a different approach.

The 111-apartment project on Larkin Street has been designed around a buyer who already knows the area, whether they're downsizing from a nearby family home, upgrading from an older apartment, or moving into the suburb to be closer to schools and transport.

[smartcode_project:default project_id=152095 project_image_fid=372391]

Boronia is the first project from Aqualand Prestige, the boutique residential division of Aqualand, the developer behind projects including AURA in North Sydney and Blue at Lavender Bay. The project is being delivered in partnership with Phoenix Property Investors.

Rather than trying to maximise density, the focus has been on creating apartments that feel much closer to a house. There's a strong weighting towards larger three-bedroom residences, alongside a limited collection of four-bedroom duplex-style sky homes, a product that's rarely delivered in apartment projects on the Upper North Shore.

[smartcode_project:default project_id=152095 project_image_fid=373694]

Architecture firm Woods Bagot has designed the building to sit within Roseville's established tree canopy rather than dominate it. The building steps down the site with deep balconies, generous setbacks and a material palette of masonry and natural stone that reflects the suburb's established character.

"The forms float among the canopies along the Larkin Street ridge to maximise the outlook across the green sea of the treetops," Woods Bagot Principal Jason Fraser said.

"The architecture is deliberately simple and understated, so that the detail, the craftsmanship and, above all, the landscape can be the hero."

[smartcode_project:default project_id=152095 project_image_fid=373685]

The same approach continues inside.

Interiors by COX take inspiration from the surrounding bushland of Lane Cove National Park, using natural stone, timber and handcrafted finishes throughout the residences. Kitchens feature Gaggenau and Bosch appliances, while the penthouse collection includes upgraded stone finishes and bespoke detailing.

"We wanted the homes to feel like an urban retreat, where the boundary between inside and out simply dissolves," COX Director Brooke Lloyd said.

Landscape architecture by Ground iNK extends that connection outdoors, with mature tree planting, deep soil landscaping and retained established street trees helping the development blend into one of Sydney's leafiest suburbs.

Residents will also have access to landscaped communal gardens, a wellness centre and outdoor spaces designed more as an extension of their own homes than traditional apartment amenities.

[smartcode_project:default project_id=152095 project_image_fid=373687]

The location is another reason Aqualand Prestige believes Boronia will resonate with buyers.

Roseville Station is around a five-minute walk away, placing Chatswood just one stop down the line, while the Sydney CBD remains within easy commuting distance. The suburb also sits within the NSW Government's Transport Oriented Development precinct, where planning changes are encouraging more housing around existing rail infrastructure.

Despite those planning reforms, opportunities to secure a new apartment in Roseville remain relatively limited, particularly developments aimed at owner-occupiers rather than investors.

Aqualand Prestige Executive Director Wayne Xiong said Boronia was designed for buyers intending to stay for the long term.

"These are homes built for decades of living rather than for the moment," Xiong said.

"Whether buyers are downsizing, raising a family or simply seeking more space, they're choosing the scale and craftsmanship of a fine house in a suburb they love, with the ease and connectivity modern life calls for."

Boronia's two-bedroom apartments are priced from $1.79 million, three-bedrooms from $2.49 million, penthouses from $2.85 million, and four-bedroom duplex-style Sky Homes from $4.5 million.

[smartcode_project_cta:default project_id=152095]

Aqualand Prestige launches Boronia to undersupplied Roseville apartment market

For most new apartment buildings, the Owners Corporation starts life with little more than a bank account and the first quarterly strata levies.

At <a href="https://www.apartments.com.au/buildings/9-gay-street-castle-hill-9-gay-street-castle-hill-nsw-2154">9 Gay Street</a> in <a href="https://www.apartments.com.au/developments/castle-hill-nsw-2154">Castle Hill</a>, it starts with around $7 million in reserve.

It's an unusual legacy of what was once one of Sydney's highest-profile apartment remediation projects. When the development, originally known as Skyview and built by disgraced developer Top Place, came under scrutiny by then NSW Building Commissioner David Chandler, an $11 million remediation bond was negotiated to ensure any building defects could be fully rectified.

The building underwent an 18-month remediation program, during which around $4 million of that bond was spent bringing the building up to the standard it should have been in from the outset.

After extensive inspections, all active rectification orders have been lifted. What's more, around $7.2 million remains secured for the Owners Corporation for the next 15 years.

In a twist few would have predicted, what began as a significant concern for purchasers has left the building with something almost unheard of in the apartment market: a multi-million-dollar financial reserve from day one.

[smartcode_project:default project_id=147685 project_image_fid=359136]

<a href="https://www.apartments.com.au/project-marketer/equitifund-group">Equitifund</a> Executive Chairman Greg Huxley said the structure offers buyers a level of certainty that is difficult to replicate.

"The $11 million bond established for the Skyview Castle Hill development represents exceptional value, providing genuine financial security for purchasers," Huxley said.

"Unlike a standard insurance policy, this bond consists of real funds held in trust for the Owners Corporation, offering a tangible layer of protection and added peace of mind."

The apartments themselves have been designed with a focus on practical, contemporary living. Interiors feature Smeg appliances, stone benchtops, tiled living areas, carpeted bedrooms, 2.7-metre ceilings, floor-to-ceiling glazing, and ducted heating and cooling throughout.

Residents also have access to a range of shared amenities, including two rooftop barbecue areas, a swimming pool, children's playgrounds, secure building access, storage cages, and visitor parking.

The location continues to be one of the project's strongest drawcards. Castle Hill Metro Station sits virtually on the doorstep, providing direct connections across Sydney's expanding Metro network, while Castle Towers offers extensive retail, dining, entertainment, and service amenities within walking distance.

[smartcode_project:default project_id=147685 project_image_fid=359127]

The building, now named after its location at 9 Gay Street, comprises a diverse mix of one-, two-, and three-bedroom apartments starting from just under $600,000.

Equitifund National Sales Director Ben Hamblett said demand in the Hills District continues to be driven by buyers seeking convenience and connectivity.

"Interest from both owner-occupiers and investors in Castle Hill remains exceptionally strong, with buyers consistently prioritising developments in close proximity to the Metro station and Castle Towers Shopping Centre," Hamblett said.

"There is a clear trend in the market, with purchasers seeking convenient access to transport and lifestyle amenities that support a seamless, low-maintenance way of living."

On top of the long-term protection afforded by the remaining $7.2 million bond, Equitifund is offering a limited-time stamp duty rebate on selected apartments.

Eligible purchasers can also secure finance options, including a 3.99 per cent two-year variable rate, loan-to-value ratios of up to 90 per cent, and interest-only lending options through EquitiCredit.

[smartcode_project_cta:default project_id=147685]

Why this Castle Hill apartment building starts with a $7 million advantage

For much of the past few years, conversations about Australia's property market have centred on the rapid growth seen in Sydney, Brisbane, Gold Coast, and Perth. <a href="https://www.apartments.com.au/developments/melbourne-vic-3004">Melbourne</a> has followed a different trajectory.

That relative underperformance is now encouraging some buyers to reassess the city, particularly those willing to look beyond short-term market movements and focus on quality property in established locations, along with the long-term growth prospects of a city expected to overtake Sydney as Australia’s most populous.

John Bekiaris, Research &amp; Market Insights at <a href="https://www.apartments.com.au/project-marketer/equitifund-group">Projects by Equitifund</a>, said Melbourne's current position is attracting increasingly sophisticated purchasers.

"Melbourne continues to present one of Australia's strongest long-term investment stories," Bekiaris says.

"While other capital cities have experienced stronger recent growth, that relative underperformance is exactly what's attracting sophisticated counter-cyclical investors."

[smartcode_project:default project_id=1979 project_image_fid=363268]

Equitifund isn't just commenting on Melbourne's property market, it's investing in it.

The Sydney-headquartered capital partner has taken over the remaining apartments at <a href="https://www.apartments.com.au/buildings/victoriana-melbourne-20-queens-road-melbourne-vic-3004">Victoriana</a>, the recently completed glass-encased development opposite Albert Park Lake in Melbourne's tightly held St Kilda Road precinct.

Designed by <a href="https://www.apartments.com.au/architects/rothelowman">Rothelowman</a> and built by <a href="https://www.apartments.com.au/builders/hickory">Hickory</a>, Victoriana places residents between one of Melbourne's most recognised parklands and the CBD, offering oversized two and three-bedroom apartments aimed at owner-occupiers seeking a genuine alternative to a traditional family home.

The development comprises 232 completed residences alongside a suite of resident amenities, including a 25-metre indoor swimming pool, gymnasium, landscaped entertaining areas, resident lounges, EV charging, secure basement parking and a concierge-style arrival experience.

[smartcode_project:default project_id=1979 project_image_fid=363229]

The apartments have been designed with owner-occupiers firmly in mind.&nbsp;Open-plan living and dining areas flow onto generous balconies framing views across Albert Park Lake, Fawkner Park, the Royal Botanic Gardens and the Melbourne skyline.

Kitchens feature Gaggenau appliances, stone benchtops and generous preparation space. Bedrooms include built-in robes, while bathrooms feature full-height textured tiling. Hardwood flooring and ducted air conditioning complete residences designed for long-term living.

Rothelowman's architecture takes its cues from the landscape opposite the site. Sweeping horizontal glazing references the movement of Albert Park Lake, while generous balconies and expansive glazing strengthen the connection between the apartments and the surrounding parklands. The result is a building designed to deliver the scale and amenity expected of luxury apartment living, while offering the larger floorplans increasingly sought by owner-occupiers.

[smartcode_project:default project_id=1979 project_image_fid=363284]

The location is one of Victoriana's defining characteristics. Positioned on Queens Road, residents are directly opposite Albert Park Lake and within easy reach of Fawkner Park, the Royal Botanic Gardens, South Melbourne, St Kilda Road and the CBD. With few comparable development opportunities remaining in the precinct, buyers are increasingly placing value on outlooks that are unlikely to be interrupted by future construction.

Greg Huxley, Founder of Equitifund, believes those qualities become even more valuable over time.

"Premium real estate has always rewarded buyers who take a long-term view," Huxley said.

"Victoriana represents the kind of asset that's increasingly difficult to recreate today, particularly in an established location like Queens Road."

He said rising construction costs are also changing the way buyers assess completed developments.

"When you combine an irreplaceable location with thoughtful architecture and premium finishes, you create something that becomes increasingly difficult to reproduce as construction costs continue to rise."

[smartcode_project:default project_id=1979 project_image_fid=363228]

According to National Sales Director Ben Hamblett, enquiry has been driven largely by Melbourne downsizers and buyers upgrading from smaller apartments.

"Interest in Victoriana continues to build, with strong buyer focus on the larger owner-occupier residences within the development," Hamblett says.

"Enquiry is increasingly driven by local buyers who recognise the rarity of what's on offer: park-facing apartments in an established neighbourhood where new development opportunities are becoming increasingly scarce. At Victoriana, the view is not just a feature; it's an appreciating asset in its own right."

He said interstate enquiry has also strengthened as buyers reassess Melbourne's position within the national property cycle.

"Melbourne currently stands as the most compelling entry point of any major Australian capital, and discerning buyers are beginning to recognise what those who move early always understand: the best opportunities are taken before the price rise confirms them."

[smartcode_project_cta:default project_id=1979]

Why now is the time to buy in Melbourne's premium apartment market

Developers and apartment buyers have a narrowing window of opportunity before Brisbane's Olympic infrastructure pipeline begins competing directly with residential construction, pushing up costs, tightening labour supply and making new projects increasingly difficult to deliver.

While Brisbane's apartment market continues to benefit from strong population growth and limited housing supply, industry research suggests the years leading up to 2027 could prove to be the most important period for developers looking to secure builders and buyers hoping to purchase before the next wave of price increases.

A new Colliers report, Brisbane 2032 Olympic and Paralympic Games: Creating Solutions, highlights the scale of the challenge. While thousands of new homes are planned across South East Queensland, the Brisbane Olympic Athletes Village alone will deliver more than 10,500 beds during the Games before being converted into around 1,750 to 2,000 apartments. Equivalent to almost two years of typical inner-city apartment supply, the project will also absorb a significant share of the construction workforce and building materials.

The broader construction pipeline paints an even clearer picture.

Construction Skills Queensland's Horizon 2032 report forecasts Queensland's annual construction pipeline will average $69 billion over the coming years before peaking at $75 billion in 2027-28. Demand for construction workers is expected to increase by 17 per cent to almost 150,000 people, with the industry facing an annual shortfall of around 19,000 workers that could blow out to as many as 35,000 during the peak construction period.

The Olympic venues, athletes village and supporting infrastructure will account for billions of dollars worth of work across South East Queensland through to 2032, creating intense competition for labour at a time when Australia's residential construction sector is already under pressure.

[smartcode_project:default project_id=150489 project_image_fid=373834]

Colliers Queensland Residential Director Andrew Scriven said the convergence of these projects is creating a clear window of opportunity for both developers and buyers.

"From 2027 onwards, the market will shift dramatically," Scriven said.

"Labour will increasingly be locked into government-led infrastructure and Olympic projects, which means private residential developments will face higher costs and tighter margins. The developers who move now are the ones most likely to get projects off the ground."

Scriven said the same dynamic would also affect buyers, with fewer apartment projects expected to launch once construction capacity tightens.

"If you're looking to change your lifestyle over the next five years, now is your window of opportunity to buy."

[smartcode_project:default project_id=150713 project_image_fid=373827]

Developers are already positioning themselves ahead of that window.

Following the success of Monarch at Toowong, Consolidated Properties is preparing to launch two new Brisbane apartment projects in the second half of 2026. They include <a href="https://www.apartments.com.au/new-apartments/gloriette-30-bedivere-street-yeerongpilly-qld-4105">Gloriette</a> at Yeerongpilly Green, a 25-storey tower within one of Brisbane's key Olympic precincts, and <a href="https://www.apartments.com.au/new-apartments/castile-47-skyring-terrace-newstead-qld-4006">Castile</a>, a recently approved 25-storey riverfront development at 47 Skyring Terrace in Newstead.

Hutchinson Builders will deliver both projects, with early works already underway at Yeerongpilly and Newstead expected to commence later this year.

The timing comes as Brisbane's fundamentals continue to strengthen, with strong interstate migration, population growth and vacancy rates remaining below 1.5 per cent.

Colliers Queensland researcher Pragya Sharma said Greater Brisbane is forecast to require around 40,000 new apartments between 2021 and 2031.

"There's a real mismatch emerging between when housing is needed and when it will be feasible to build," Sharma said.

"As a result, the period leading up to 2027 presents a key window of opportunity for developers to secure approvals, funding and construction capacity, while buyers will have greater choice before supply constraints intensify."

Colliers research outlines a critical pre-2027 window to start residential projects before labour squeeze: now is the time to buy

Developers, buyers on watch in South East Queensland ahead of construction crunch: Colliers

Commercial Market

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For first time industrial property investors, the entry point into Brisbane’s industrial markets is typically strata-titled industrial units and small freestanding properties, according to valuation firm Herron Todd White’s May commercial update. 
In more recent times, the development of workstores (very small industrial units) has enabled market entry at very low price points. These are emerging in the market with units in the vicinity of 60 to 100 square metres with entry-level pricing of sub $300,000. 
This compares to industrial units and freestanding properties which now typically start at above $500,000. 
Workstore developments are emerging throughout Brisbane’s industrial precincts and include locations such as Enoggera, Tennyson, Geebung, Tingalpa, Eagle Farm and Northgate. 
Price points for workstores and small strata titled industrial units generally range from $2,200 per sqm to $3,300 per sqm. Investment opportunities also exist for astute investors to acquire B or C grade properties within core locations and value add through refurbishment or reconfiguration. 
The industrial investment market has been relatively strong in contrast to the flat leasing market. The prime leasing market is, however, improving slowly although incentives are expected to continue to rise, say HTW.
“Future rental growth will largely depend on economic conditions, future supply and business confidence,” says the note.
Lease up periods for secondary assets are now up to 12 months. Across Brisbane, prime grade net face rents are ranging from $104 per square metre in the southwestern corridor to $115 per square metre in the Trade Coast precinct. Incentives for prime grade products are averaging 15.7 percent. 
Demand for prime grade stock has been strong with yields across Brisbane reflecting between 6.25 percent and 7.25 percent. Prime yields have tightened by circa 100 basis points over the past 12 months, whilst secondary grade yields have tightened by circa 25 basis points. Yields for secondary properties reflect a range of 7.95 percent to 8.6 percent. Approximately 241,500 square metres is expected to be added to the industrial market by the end of 2017 in the Trade Coast precinct and the southern precinct. 
“We see 2017 as a good time to invest in Brisbane’s industrial property market,” say HTW.  
It outlines a range of factors including: 
• The limited pipeline of new supply, limiting competition and providing price stability; 
• The low interest rate environment at present, which is supporting loan serviceability; 
• Brisbane’s expected growth both in infrastructure investment and economic productivity – the duplication of the runway at Brisbane Airport is one example. This will bolster the productive capacity of the region and will have flow on effects for Brisbane’s industrial property markets; 
• High land values which limits speculative activity; and 
• Brisbane’s relative affordability compared to other capital cities (particularly Sydney and Melbourne). 
Location and building quality are critical in the current market. In terms of location, precincts offering ease of access to major arterial roads and highways throughout 2017. Prime investment opportunities are scarce indicating that further yield compression is possible in 2017. 
“We do however consider that we are getting towards the bottom of the yield compression cycle. Nonetheless, there is ongoing strong demand from investors across all price levels and we anticipate on the whole that value levels are likely to hold firm for the foreseeable future,” say HTW.
On the quality measure, prime buildings offering modern tilt panel construction, higher internal clearances (above nine metres) and drive through or around access are more appealing to occupiers and investors compared to sheet metal buildings with lower clearances and inferior access. 
For investors, the third critical element is the quality of the leasing covenant, including tenant strength, lease term and rent review profile. There is very strong demand when investments tick the right boxes. A low interest rate environment will continue to support sales and leasing activity within the sector.
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prateek24-ezbwHMbNAk

Brisbane’s industrial market, strata-titled units provide good entry point

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It’s not just the residential property market that is showing strong growth, sentiment in the commercial property market too rose to a new high in the first quarter of 2017, with offices taking the lead, according to the latest NAB Commercial Property Survey Q1 2017.
The Commercial Property Index climbed 6 points to +27, with around 250 panellists participating in the Q1 2017 Survey, said NAB.
NAB Group Chief Economist Alan Oster said the improvement was reflected in a much higher sentiment for office property while industrial grew modestly.  
Sentiment in the CBD hotels sector was lower, but still very solid and highest across all sectors, while sentiment in retail property markets was unchanged, the survey said.
“Confidence levels also lifted in Office, Industrial and CBD hotels markets, but fell for retail property as household consumption continues to slow to a moderate pace across most states and territories,” Oster said.
“By state, sentiment is still highest in NSW, where it reached a new survey high, followed by Victoria. It rallied in WA but is still very weak and fell in SA/NT and QLD.” 
<img src="https://www.urban.com.au/images/2017/04/26/NABCommPropIndex.png" alt="">
The survey found that prospects for capital growth in next 1-2 years improved for CBD hotels, office and industrial property, but were unchanged for retail.
Other findings include the expectation that office property will continue to provide the best income returns in the next 1-2 years, with solid growth in NSW and Victoria continuing amid tightening vacancies in both states. Rental growth is expected to remain very weak in WA, reflecting expectations for elevated vacancy rates and oversupply.
 <img src="https://www.urban.com.au/images/2017/04/26/NABCommPropIndex2.png" alt="">
<img src="https://www.urban.com.au/images/2017/04/26/NABCommPropIndex-State.png" alt="">
Just over one in two developers expect to start new projects in the next six months, with around six in 10 projects looking to develop into residential projects, says the survey.
Funding conditions are however now considered to be harder than at any time since the final quarter of 2011, particularly for debt borrowing, and are expected to become even harder in the next 6-12 months.
More than one in four (28%) developers are looking to source more capital in the next next months, the survey said. But getting funding is now considered to be harder than at any time since Q4’11. 
<img src="https://www.urban.com.au/images/2017/04/26/NABPanel.png" alt="">
The survey was first launched in 2010 and is one of the leading surveys of market sentiment in the commercial property space. Its panel consists of real estate agents, fund managers, developers and investors.
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Commercial property sentiment hits new high in 2017 Q1: NAB Survey 

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Commercial property prices have continued to rise by more than rents, and yields have now reached historically low levels, according to RBA’s Financial Stability Review 2017.
Nonetheless, yields on Australian commercial property remain higher than in many overseas property markets and other asset classes, which has attracted investors, including foreign buyers, it noted.
<a href="https://www.propertyobserver.com.au/images/2017/04/19/Graph%202.8.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/19/Graph%202.8.jpg" alt="">
The current heightened commercial property valuations may leave some leveraged investors vulnerable to subsequent price declines.
In particular, if global interest rates were to increase more quickly than investors currently anticipate or demand from foreign or domestic investors were to decline, a consequent price decline may lead leveraged property investors to breach loan-to-valuation covenants on bank debt.
They would then be required to inject additional equity to support their loan facilities, which may prompt further sales and price declines if they were unable to do so.
Like residential property markets, conditions in commercial property markets vary significantly by state and type of asset.
Investor demand is strongest in Sydney and Melbourne, and for office and industrial properties.
In Sydney and Melbourne, prices for office property are rising, and growth in rents has increased in recent months due to strong tenant demand.
In Brisbane, office prices are rising at a much slower rate, while prices in Perth are flat. Office vacancy rates are elevated in Brisbane and Perth (Graph 2.9).
<a href="https://www.propertyobserver.com.au/images/2017/04/19/Graph%202.9.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/19/Graph%202.9.jpg" alt="">
There is some evidence that conditions in the prime-grade Brisbane and Perth office markets may be stabilising, though this appears to have come at the expense of secondary-grade markets where the outlook remains weak.
Falling rents and increasing vacancy rates have motivated tenants to relocate into better quality office spaces.
Accordingly, prime-grade tenant demand picked up in Brisbane over the past six months, while in Perth analysts generally expect the vacancy rate in prime-grade office property to stabilise, with little new supply forecast to come on line over the next couple of years.
Conditions in industrial and retail commercial property markets also vary by city. Stronger local economic conditions and infrastructure investment have supported tenant demand in the Sydney and Melbourne industrial markets, and rent growth has picked up noticeably in Sydney.
Conditions in Brisbane may be stabilising, while rents in Perth continue to fall.
In retail property markets, tenant demand has been soft nationally.
In 2016, APRA reviewed banks’ commercial property lending practices, including lending for residential development.
The review examined banks’ underwriting standards and portfolio controls.
Among other things, the review found evidence at some ADIs of weak underwriting standards and that the ability of lenders’ boards to monitor the risk profile of lending was hampered by inadequate information systems.
Over the past six months, banks have tightened their commercial property lending standards and growth in banks’ commercial property exposures has slowed, due primarily to slower growth in lending for residential and land development (Graph 2.10).
<a href="https://www.propertyobserver.com.au/images/2017/04/19/Graph%202.10.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/19/Graph%202.10.jpg" alt="">
A decline in Australian banks’ commercial property exposures has been offset by an increase in Asian banks’ commercial property exposures (Graph 2.11).
<a href="https://www.propertyobserver.com.au/images/2017/04/19/Graph%202.11.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/19/Graph%202.11.jpg" alt="">
Find the RBA's latest Financial Stability Review 2017 <a href="https://www.rba.gov.au" target="_blank">here</a>.
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j.ballantyne1990-6AQqhLzZaK

Commercial prices continue to rise more than rents: RBA

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Office leasing figures for Melbourne’s CBD jumped nearly 128 percent over the 12 months to March with the lion’s share bagged by government, according to preliminary data from Savills research.
The government and community sector drove the leasing surge, taking 38 percent of the space. 
Population growth and infrastructure projects have also been important market drivers. Savills associate director of Research, Monica Mondkar, said 569,810 square metre of leasing activity was recorded in the Central Melbourne office market in the last 12 months. 
“This is up 128 percent on the 250,000 square metres leased in the 12 months prior, and also up on the five-year average of 269,943 square metres, so these are quite remarkable figures in anybody’s language,’’ Mondkar said.
The Government &amp; Community sector was the dominant sector leasing 224,906 square metres, 83 per cent of which was Prime Grade. Direct leases totalled 77,868 square metres, while 81,000 square metres was pre-committed. Public administration was the largest sub-sector accounting for 65 per cent of the space taken-up under the Government &amp; Community sector, followed by Education at 23 percent.
Property and Business services was the next largest leasing sector at 28 percent followed by IT and Communication at 15 per cent and Finance and Insurance at 13 percent.
A number of factors contributed to the massive rise in leasing such as renewal of government leases, consolidation of government departments, population growth, government infrastructure projects, staff retention and recruitment requirements, and efficiency gains, added Phil Cullity, director, Office Leasing. 
“Last year, net absorption was 117,000 square metres which smashed the 10-year, 86,000 square metre average and all indications are that we are in for another 12 months like that,” he said.
Developers are pushing ahead with new buildings especially with economic rents being achieved, he added.
<a href="https://www.propertyobserver.com.au/images/2017/03/29/MelbourneCBDLeasing.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/03/29/MelbourneCBDLeasing.png" alt="">
“Overall governments – state and federal – have underpinned the massive take up with population growth also an important part of the equation,” he said.
Government departments had not upgraded during the GFC years of 2008/2009/2010 because of fewer options to go to, and a lot of government leases recently came up for renewal at the same time.
“The state government, in particular, has been proactive in taking advantage of market conditions, locking in rents and incentives, before rents begin to rise,” he said.
“Governments now realise that, as they are in competition with the private sector for the best young talent, they must offer a similar level of accommodation and that includes the latest building services including end of trip facilities, meeting facilities, amenities and access to transport, cafes.’’
Government tenants were also increasingly mindful of the need for more efficient buildings in reducing costs. 
The Victorian government’s current infrastructure programme including level crossing removals, the Metro Tunnel and the Western Distributor, was also driving the overall leasing market as companies associated with these projects were also taking leases in their vicinity, Cullity said.
<a href="https://www.propertyobserver.com.au/images/2017/03/29/MelbourneCBDLeases.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/03/29/MelbourneCBDLeases.png" alt="">
Source: Savills Research # Renewals
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Melbourne CBD office leasing up 128 percent in 12 months, helped by government renting: Savills

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The returns from Australian office assets in 2016 were well above the historical benchmark, according to a new report by leading property services firm JLL.
Investors are now accepting that returns for core real estate will be broadly between 6.50 percent and 8 percent, said the Australian Office Investment Review and Outlook. 
Investor mandates were more diverse in 2016, with a movement of capital into suburban office markets due to the positive market fundamentals. 
JLL recorded $5.1 billion of transactions across non-CBD office markets, or 37 percent of total office sales in 2016. Historically, suburban markets have only accounted for around 30 percent of transaction volumes per annum.
Head of Office Investments – Australia, Rob Sewell said the firm’s analysis is pointing to another good year of returns for the Australian office market after 2016 levels were above historical benchmarks. 
“Investment mandates are diverse and over the first part of 2017 we have capital ready to be deployed across the risk spectrum,” said Sewell. 
JLL’s area-weighted Total Return Index (TRI) for CBD office markets increased by 12.6 percent in 2016. 
“We are currently in the midst of an unprecedented liquidity cycle, which is being expressed both by high levels of transaction volumes and the number of bidders on major assets.
“Total office volumes last year were curtailed by a lack of available product. Nevertheless, 2016 still ranked as the third highest year of record for volumes at $14.46 billion. The number of under-bidders on campaigns in 2016 across geographies were at elevated levels.  
<a href="https://www.propertyobserver.com.au/images/2017/04/4/Apr5CommPropChart1.png" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/04/4/Apr5CommPropChart1.png" alt="">
He said new pricing levels would increase vendor motivation, while liquidity would create an opportunity to divest large less liquid assets.
Offshore investors accounted for 42 percent of total office transactions in 2016 at $6.19 billion, with Chinese, Singaporean and US investors dominating the market.  
“The Australian office sector remains a beneficiary of the great portfolio tilt to real estate and the Asia Pacific region,” said JLL’s head of International Investments – Australia, Simon Storry.
“Our review of the spread between target and current allocations by offshore investors shows potential sources of capital in 2017 include South Korea, Hong Kong, Singapore and Germany,” said Storry.
<a href="https://www.propertyobserver.com.au/images/2017/04/4/Apr5CommPropChart2.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/04/4/Apr5CommPropChart2.png" alt=""> 
JLL’s Australian head of Research, Andrew Ballantyne said investors navigating the Australian office investment landscape have opportunities to satisfy diverse mandates. 
“Sydney and Melbourne can be classified as the high growth markets. Asset pricing is reflective of the strong rental growth outlook with prime net effective rents projected to rise by 34.9 percent in the Sydney CBD and by 18.7 percent in the Melbourne CBD from 2017 to 2019.”
“Brisbane and Perth offer counter-cyclical opportunities and are considered to the cheap side of fair value markets. Yield spreads to Sydney and Melbourne have widened beyond historical benchmarks and new sources of capital are exploring opportunities to gain exposure to a potential market recovery.
“Real estate investors have shown a bias for low risk assets. Adelaide and Canberra are the epitome of low risk with the volatility of returns typically lower through the cycle,” concluded Ballantyne. 
 
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jonathanchancellor-7SQnKwU6yx

Australian office investment returns above historical benchmark: JLL

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GUEST OBSERVER
Market activity in commercial and industrial real estate can be assessed under two types of market interest.
Owner-occupiers are strong at the affordable end of the market as business operators well understand that it is preferable to own rather than rent the properties they use or need for their businesses.
For many business owners it is much more effective to own rather than rent their premises, especially with the prevailing low interest rates.
It is also quite common to see the property purchased at auction held in the name of a superannuation fund where it is leased back to the operating business at often for an attractive return.
The second strong area of interest is from investors with self managed superannuation funds.
For a lot of SMSF investors a commercial property provides a diversification and they are regularly being advised by their accountants or specialist advisers to acquire a commercial investment.
Certainly the return is usually better than a residential investment because a commercial property that is well and securely leased provides a more reliable income stream than almost any other type of property investment.
I always say that in investing in any type of property the purchaser needs to know and understand the key market fundamentals.
This includes factors like market liquidity, add on costs like State Land Tax and the transaction costs of stamp duties, legals, agency or management fees and transaction costs as both a buyer and as a potential seller.
Often my engagement may involve trying to right the wrongs caused by poor leasing advice and structure to rectify a property’s optimum lease structure.
For instance, I am currently appointed by the Melbourne Theosophical Society to manage the proposed sale of their long held historic building at 126-128 Russell Street.
A landmark four level building in part occupied by the Society it has multiple tenancies and is currently generating an annual rental income of around $350,000.
My expectation is that 126-128 Russell Street will be offered to the market before the end of the current financial year and given the shortage of key CBD freeholds on offer it is likely to be keenly bid.
David O’Callaghan is the managing director of O’Callaghan Commercial and can be contacted <a href="https://www.ocallcommercial.com.au" target="_blank">here</a>. 
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jchancellor-FAypfDUnLy

Understanding commercial market fundamentals: David O’Callaghan

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The North Shore office markets of North Sydney, St Leonards, Macquarie Park and Chatswood are reaping the benefits from an increase in domestic and offshore investment. 
Low interest rates, major new infrastructure and rising effective rentals underpin this investment demand, according to a new report by CI Australia on the North Shore.
Major new North Sydney CBD developments scheduled for completion in 2018/19 will pre-lease to major corporates and create an onflow of service tenants to North Sydney. B Grade rentals and values will rise due to stock withdrawals, says the report.
“A supercharging of densities and land uses will continue as the NSW government continues to focus on mixed-use development surrounding existing infrastructure,” says the report. 
The Sydney Metro project and improved road infrastructure will boost investment and consolidate the position of North Sydney and the North Shore markets as the essential elements of Sydney’s economic arc.
“Expect further downward pressure on yields for North Shore secondary assets as effective rental growth crystallises.”
<a href="https://www.propertyobserver.com.au/images/2017/03/10/NorthShoreInvestorType.png" target="_blank">Click to enlarge</a>
 <img src="https://www.urban.com.au/images/2017/03/10/NorthShoreInvestorType.png" alt="">
The Market 
The Sydney North Shore is a collection of four commercial markets located close to the Sydney CBD. 
The area extends from the Northern end of the Sydney Harbour Bridge through to major northern metropolitan areas, such as Macquarie Park. 
Characterised by its dynamic central core, The North Sydney CBD has historically been regarded as the focal point of the North Shore office market. However, in terms of total office space, it has been eclipsed by Macquarie Park, which now sits as NSW’s largest office market outside of the Sydney CBD. 
<a href="https://www.propertyobserver.com.au/images/2017/03/10/NorthShoreSummary.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/03/10/NorthShoreSummary.png" alt="">
<a href="https://www.propertyobserver.com.au/images/2017/03/10/NorthShoreCommLeasing.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/03/10/NorthShoreCommLeasing.png" alt="">
The North Shore area is an active environment for developers, investors and tenants seeking opportunities made available through its broad and diverse markets, offering a variety of size, use and growth potential. 
When combined, these four markets provide a total 2,295,907sqm of commercial office space. These include: 
1. North Sydney 822,496sqm 
2. Crows Nest/St Leonards 315,542sqm 
3. Chatswood 278,919sqm 
4. Macquarie Park (MP) 878,950sqm
<a href="https://www.propertyobserver.com.au/images/2017/03/10/NorthShoreCommStock.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/03/10/NorthShoreCommStock.png" alt=""> 
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Sydney's North Shore a big draw with commercial property investors

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SPONSORED POST
Global office yields continue to firm as investors seek safe havens for their funds amidst ongoing economic and political uncertainties, and with those factors likely to prevail in the short to medium term, the office investment markets, particularly in gateway cities, look certain to continue to prosper, according to global investment advisor Savills.
<a href="https://www.propertyobserver.com.au/images/2017/03/07/Sydney%20Leads%20Global%20Yields%20-%20Graph%201.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/07/Sydney%20Leads%20Global%20Yields%20-%20Graph%201.jpg" alt=""> Savills and Australia’s Deakin University’s latest <a href="https://www.savills.com.au/publications-pdf/savills-world-office-yield-spectrum-1h-2017.pdf" target="_blank">World Office Yield Spectrum</a> report found yields across 11 gateway cities had firmed by an average 95 basis points since December 2014 with San Francisco witnessing a dramatic 32 percent fall from nearly 7 percent to 4.64 percent, while Shanghai and LA West barely bothered the analysts with falls of just 0.29 and 0.31 percent respectively. Of the gateway cities, Sydney led the pack offering by far the most attractive yields at 5.37 percent, with LA West and San Francisco the only others offering above 4.50 percent. The data from all 54 cities across, Asia, Europe, the US and Australia, put Hanoi on top with a prime yield of 8.75 percent followed by Ho Chi Minh City at 8.5 percent. Taipei brought up the rear with the tightest yield of just under 2 percent while Hong Kong was at 2.5 percent. Report editor, Savills National Head of Research in Australia, Tony Crabb, said generally office markets looked set for another year of strong investment driven by office property’s most preferred investment status along with economic and political factors which had pushed investors towards the safety of bricks and mortar. “This is an interesting time in the investment cycle where markets have responded to the inflation/growth trade by pushing bond yields and growth stocks, whilst also recognising office markets should perform well as demand grows,” Mr Crabb said.  He said with some level of economic and political uncertainty remaining in most markets, it was fair to say that office risk premiums would continue to offer very good value and hence drive demand and, in some instances, even firmer office investment yields. “Much of what happens in 2017 and beyond will depend on the course the US Federal Reserve takes with regards to interest rates and the new President’s policy settings. “Those factors, along with Brexit negotiations and elections in key European countries, will largely determine how currencies behave, how trade flows and how capital moves around the world,” Mr Crabb said. He said what, if anything, would limit office property investment was the shortage of stock in most gateway markets which had experienced, in some instances, record investment levels in recent years. “That shortage of stock is being exacerbated by the strength of leasing markets, especially in gateway cities, which is driving tighter vacancy and rental growth, and landlords are happily holding on for the ride,” Mr Crabb said.
<a href="https://www.propertyobserver.com.au/images/2017/03/07/Sydney%20Leads%20Global%20Yields%20-%20Graph%202.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/03/07/Sydney%20Leads%20Global%20Yields%20-%20Graph%202.jpg" alt="">
 A look into each global market
Australia/New Zealand
Mr Crabb said the $27 billion worth of commercial property transactions recorded in Australia in 2016 remained above the five year average for the fourth year running and while the market was on track to record a fifth consecutive year of growth, a lack of portfolios and a diminishing supply of prime properties would limit investment volumes. Foreign investors were the most active in 2016 purchasing 40 percent of stock reported sold - approximately $10.7 billion - while professional investors, represented by Trusts, Funds and Syndicates, spent $8.75 billion. Mr Crabb said while both buyer groups remained keenly interested in ongoing investment, yields would continue to firm. “In some markets, particularly Sydney and Melbourne, market fundamentals are improving rapidly. We believe this improvement will lead to further tightening in yields as investment capital starts to price in expectations of future NOI growth. This part of the yield cycle is just beginning,” he said. Asia
In Hong Kong Savills Senior Director, Research and Consultancy, Simon Smith, said yields across Asian investment markets had firmed but there was still some limited scope for further falls. “The low interest rate environment, the ongoing search for yield and increasing allocations to real estate are all considered to be positives for the sector. “One of the most significant challenges for investors is a lack of prime office stock and volumes have fallen consistently compared with 2015, a situation which is unlikely to reverse any time soon,” Mr Smith said. He said the lack of liquidity across most asset classes had arguably been masked by the above average number of portfolio deals recorded over the second half. “Scarcity of assets has resulted in money accumulating on the side-lines causing fundraising to decline versus the previous year,” Mr Smith said. He said despite its inward focus, Asian real estate capital had continued to explore overseas markets with the US attracting the lion’s share of deals. Cross border activity, Mr Smith said, had been dominated by China, South Korea, Singapore and Hong Kong in that order while South Korean activity registered the highest rate of increase.
UK/Europe
Savills Director Research Europe, Lydia Brissy, said Brexit had seen a decline in institutional investment activity but a sharp rise in demand from off-shore private investors. Many investors, she said, had been attracted by the weakening of the pound which was seen as enough to compensate for a perceived increase in occupational risk. “Overall, our predictions for 2017 and beyond are investment volumes are expected to trend downwards towards £50 billion per annum, with a swing away from opportunistic deals to income-security plays. “Yields are expected to rise in most sectors, though the stable debt market, low vacancy rates, and global investor demand is expected to put a lower ceiling on prime yields than was reached during the GFC. “Brexit definitely carries a risk of creating a sustained period of occupier uncertainty, but to some degree this should be balanced by lower levels of development activity. However, until some clarity emerges as to how Britain will exit from the EU, the real impact on the UK market will be hard to quantify,” Ms Brissy said. She said the expectation was that investment volumes in Continental Europe in 2017 would be similar to 2016. “Although interest rates are expected to rise to 1.16% in the Eurozone, the property market should remain high on investors’ radar. In France, Germany and the Netherlands where elections will be held, we expect a wait and see attitude, however the prevailing story regarding core countries is the lack of prime product. She said prime yields in non-core countries remained above the European average, offering more attractive returns and yield compression potential: “This is especially so in countries like Spain and Italy where strong property fundamentals combined with the availability of portfolio opportunities are attracting foreign investors.” USA
In New York, Director of US Real Estate Analytics at Savills Studley, Keith DeCoster, said in comparison to the volatility in equity markets, real estate in the US held up very well in 2016 with office property sales totalling $124 billion to November, roughly 4 percent below the $129.6 billion in the first 11 months of 2015. “The ‘most-favoured market’ status of some gateways is slipping slightly with most buyers showing disdain for markets such as Manhattan and Washington DC, where demand is running short of growing supply. On the other hand, they have remained active in Boston and Los Angeles, where the life science and entertainment/social media sectors continue to grow,” Mr DeCoster said. He said Boston’s market fundamentals were among the strongest in the country and appeared as though they had more to run than San Francisco, which had seen a recent spike in sublet supply and drop off in leasing, while Los Angeles has seen its strongest leasing volume in a decade.
To learn more about the latest trends in global office yields, <a href="https://www.savills.com.au/publications-pdf/savills-world-office-yield-spectrum-1h-2017.pdf" target="_blank">view the Savills World Office Yield Spectrum</a>.
Savills is a leading global real estate service provider offering the full spectrum of services from strategic advice to managing assets and projects and transacting deals. To learn more about Savills, visit <a href="https://www.savills.com.au" target="_blank">savills.com.au</a>.
 
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Sydney leads as global yields continue to firm: Savills

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GUEST OBSERVER
Last year saw another year of strong performance in property investment markets across Australia, with Savills recording approximately $27 billion worth of commercial property transactions in the 12 months to December 2016.
Although this is down on the previous year ($33.74 billion), it’s much the same as the five year average ($25.6 billion). The reason behind the numbers is the lack of portfolios and a diminishing supply of prime properties continuing to weigh on investment volumes.
When comparing global yields in the World Office Yield Spectrum, of the gateway cities, Sydney led the pack offering by far the most attractive yields at 5.37 percent, with LA West and San Francisco the only others offering above 4.50 percent.
A look at regional performances
Australian interest rates fell to historic lows due to the slowdown in resource demand from China, a reversal of commodity prices and the end of the mining investment boom (coupled with the GFC). A subsequent pickup in occupier and investment demand in Melbourne and Sydney followed whilst there was a substantial reversal in fortunes in Brisbane and Perth. 
Whilst Brisbane has stabilised, Perth continues to be challenged (more office supply is in the pipeline), Melbourne is meeting both occupier and investment demand with a supply response whilst Sydney remains challenged on the supply front. An added difficulty in both Melbourne and Sydney is the continual withdrawal of office space and development sites (both in CBD and non-CBD office markets) for conversion to residential or compulsory acquisition for public works.
A look at the future
Commercial property investment yields continued to firm across the board (by an average 20 basis points) – a theme we have been seeing for several years now. Whilst the “bond yield” story has run its course, in some markets, fundamentals are improving rapidly. We believe this improvement will lead to further tightening in yields as investment capital starts to price in expectations of future NOI growth.
Generally, office markets look set for another year of strong investment driven by office property’s most preferred investment status, along with economic and political factors which are pushing investors towards the safety of bricks and mortar.
<a href="https://www.propertyobserver.com.au/images/2017/02/28/blog-research-worldofficeyields-2017-auschart.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/02/28/blog-research-worldofficeyields-2017-auschart.jpg" alt="">
With some level of economic and political uncertainty remaining in most markets, it is fair to say that office risk premiums will continue to offer very good value and hence drive demand and, in some instances, even firmer office investment yields.
Much of what happens in 2017 and beyond will depend on the course the US Federal Reserve takes with regards to interest rates and the new President’s policy settings. Those factors, along with Brexit negotiations and elections in key European countries, will largely determine how currencies behave, how trade flows and how capital moves around the world.
Tony Crabb is Savills Australia’s national head of research and can be contacted <a href="https://www.savills.com.au/blog/author/109174/Tony" target="_blank">here</a>. 
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Australian investment property: a look back and a look to the future

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REA Group chief economist Nerida Conisbee looks at what we should expect from Australia’s commercial property market in 2017.
1. Sydney to remain the top performer for both capital and rental returns
Sydney now has the lowest vacancy rate in Australia for office and industrial property.
With economic growth continuing in NSW, a slow development pipeline and more stock being taken out of the market, there are no signs of this changing in 2017.
Sydney’s CBD office market will be the strongest commercial market nationally, with vacancy continuing to decline, partly because of a growth in white collar employment but also because of the construction of Sydney Metro taking out large chunks of secondary space.
While this is great for landlords, it will be challenging for tenants as rents rise and available options reduce.
While there is some new development taking place, there is unlikely to be enough completed in 2017 to satisfy demand and this will be a drag on economic growth for NSW.
2. Flow of Chinese money to continue
Chinese buyers purchased US$3.7 billion of Australian commercial property in 2016, according to Real Capital Analytics, down from US$4.3 billion in 2015.
This decline is likely to be due to lack of buying opportunities, as opposed to a lack of funds, as buyer interest appears to continue to grow unabated.
Changes will continue to occur to the types of Chinese buyers targeting Australia, as well as what they choose to purchase.
The first wave of Chinese buyers were developers and these groups are now firmly entrenched in the Australian market.
Sovereign wealth funds have also become well established.
The next wave is likely to be large Chinese conglomerates, looking to diversify their risk and tap into the significant opportunities in Australian property.
These changes to buyers mean that the types of property is also changing.
While development sites and office buildings still dominate, growing interest from Chinese buyers in Australian hotels, agriculture and retail will be a key theme in 2017.
3. Australia’s safe haven status confirmed
As concerns about Brexit rock London – historically one of the safest markets in the world for commercial property – and uncertainty as to the impact of a Trump presidency on US property raises concerns in that market, Australia is looking even more attractive.
A quarter of a century of positive economic growth, low sovereign risk and a strong-performing property sector are all characteristics of a desirable investment destination.
Will this change to the global political landscape redefine the markets that are considered safe? With the exception of Singapore, most of Asia has been seen as too politically risky for most large scale investors. This may begin to change in 2017.
4. Amazon to finally crack online shopping in Australia
Online shopping is not big in Australia. We like it well enough but certainly not as much as the rest of the world.
Largely this is due to the fact that the proportion of spending we do online for grocery shopping remains low.
Amazon announced they will enter the Australian market in 2017.
While it is uncertain exactly how aggressive they will be, if they replicate the success they have had elsewhere it will have an enormous impact on shopping behaviour.
This will be a challenge for our supermarket chains, as well as the shopping centres that contain them.
5. Shopping centres continue to adjust to a changing landscape
Shopping centres are resilient and have been remarkable in their ability to adjust to changing consumer preferences.
Now much more than simply a place to shop, they offer entertainment, social interaction and places to eat.
Good shopping centres drive residential prices in the suburbs surrounding them, particularly if they have been recently upgraded.
Can they adapt to a potential threat from large online retailers like Amazon?
It is likely that the poorer ones will be hit but smart owners will redesign and refurbish to continue to attract consumers.
This could be by increasing the food and beverage options, being smarter about marketing to their local communities or providing more services such as medical centres and gyms.
6. Technology continues to change commercial property
The technological revolution has been slow to hit commercial property, certainly lagging behind sectors such as banking and retailing.
The indirect impacts, however, will continue to be a feature in 2017.
Whether that be by technology occupiers driving office markets (startups to Melbourne, established to Sydney), changing warehouse designs as a result of new picking technology or the above mentioned rise in online shopping, changing technology will impact the occupier markets in particular.
7. Interest rates to rise independently of RBA decisions
Interest rate rises on home loans were big news late last year, particularly given that the Reserve Bank of Australia made two cuts just a few months prior.
Next year, it is likely the banks will continue to break from the RBA’s rates decisions. Even if the RBA cuts interest rates, there is no guarantee that this will be passed on.
While this seems to be largely focused on residential lending, it may also impact lending on commercial property, particularly for those property types that are closely linked to the residential market (like development sites).
8. Australian investors expand offshore
Australians were among the biggest investors offshore in commercial property in the lead up to the GFC, but now barely feature.
Part of this is because so many of them made poor purchasing decisions, and have been impacted by those choices for many years.
The other factor is that so many large Australian investors are now backed by offshore money, which means very few want their funds sent outside Australia.
In 2017, however, the number of investors looking overseas is likely to grow.
That group is likely to be dominated by Australian superannuation funds, however smaller unlisted funds and syndicates are likely to become more active.
Part of this will be about moving up the risk curve but also about diversification and taking advantage of opportunities in other markets.
9. Investors continue to move up risk curve
The GFC was almost a decade ago and the types of property popular with investors have changed significantly over that time period.
Moving from the safest office markets in the years immediately after 2007 to the rise in the popularity of agribusiness, medical centres and self storage more recently, the change is consistent with most commercial property cycles.
A search for stock, yield and opportunity will continue to drive the types of properties that are attractive to investors in 2017.
This could mean moving offshore, into childcare centres or contaminated industrial sites.
10. Apartment oversupply concerns impact development site sales
The apartment boom has been kind to owners of development sites, with values rising rapidly over the past five years in almost every capital city.
In 2017, inner Melbourne and inner Brisbane are coming into an enormous amount of new apartment completions.
While this may not necessarily be a problem, it is likely to lead to developers taking a pause in these markets as the new supply is absorbed.
Expect development site values to stabilise or even decline as a result.
This article appeared in <a href="https://www.realcommercial.com.au/news/how-is-the-commercial-property-market-shaping-up-in-2017" target="_blank">www.realcommercial.com.au</a>.
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