Commercial Property Investment Strong in 2010

The relative strength of the Australian economy has seen local and international property investors taking over the commercial property market in 2010.

Investors, ranging from domestic institutional core and value add funds, private groups and a significant pool of offshore groups, have been attracted by the belief the market is currently at the bottom of the property cycle – meaning, the only way from here is up.

Investors have also been influenced by the strong underlying performance of the Australian economy with offshore buyers spending up big despite a strong Australian dollar.

In the first quarter of 2010 alone, the office sector generated sales of $1.5 billion – almost the same as the first half of 2009.

Credit markets have improved and confidence increased. Values have stabilised and the rift between buyers’ and sellers’ expectations has narrowed, helping to lift the level of transactions.

The number of International investors have increased greatly, with 68% of sales in the March quarter, compared to just 13% in the same quarter in 2009. A number of international investors made their first entry into the Australian market, including K-REIT who purchased a 50% stake in 275 George Street for $166 million.

According to the Property Council of Australia, for the market itself, vacancy rates in Brisbane’s CBD have increased to 11.3%, their highest level in 15 years. Brisbane has the highest vacancy rate for any capital city in Australia and it is predicted these levels will increase to around 12.2% in the next 12 months. Vacancy in the fringe has remained stable at around 11.6%.

The outlook for prime yields has improved and the upturn in business confidence has precipitated a recovery in leasing enquiry figures. The rate of decline in prime gross effective rents in Brisbane is starting to slow.

Other major commercial investment sales so far in 2010 include:

• 10 Market Street, Brisbane CBD – sold for $34.25 million
• 359 Queen Street, Brisbane CBD – sold for $9.2 million
• HQ South Tower, Fortitude Valley – sold for $94 million

Tara Downey is Communications Officer for McGees Property, Brisbane. She has a media background spanning more than 10 years with working experience in business reporting, travel writing and newspaper journalism. McGees Property specialises in commercial real estate with our successful and highly skilled sales, leasing, valuations and professional services, and asset management teams. CBD For Anxiety UK