Brisbane’s office market cannot be called illiquidJanuary 22, 2013 / By
Australia is firmly entrenched near the top of international investors’ shopping list for commercial property due to a relatively stable macroeconomic environment, an exposure to Asia’s rapid growth and high relative returns. As such, more investors have recently been looking beyond Sydney and Melbourne for investment options.
Brisbane as the next biggest Australian market, and within a rapidly growing resource-driven region, has attracted a lot of international capital of late. Over the past three years, international buyers have invested around AUD 1.32 billion in Brisbane office property, which is around one third of all property transacted in the market over the period. This investment has been across 17 different assets, 10 in the Brisbane CBD and seven in Brisbane’s near-city office market. It has also included some prominent investors, such as the US-based Hines Group, that has made their initial Australian purchase in Brisbane.
The traditional route for international investors into Australia has been to gain a strong foothold in Sydney and Melbourne before even considering other markets. Aside from being the largest two markets, foreigners are most familiar with these two cities and generally know little about other Australian cities. While perceptions towards Brisbane are rapidly changing due to strong recent economic growth, the pre-conception many overseas investors have had has been that the market is too small and, as a result, illiquid and difficult to exit when capital availability tightens up.
However, analysis suggests this assertion that the Brisbane market is illiquid is not supported by recent experience. Since the start of 2008, Brisbane has seen 64 major office market assets sell for in excess of AUD 4.2 billion. These assets total around 816,000 sqm of office NLA total or 38% of Brisbane’s current total office stock. By comparison, Sydney has seen 81 transactions over the period totaling 30% of its current stock and Melbourne has seen 79 transactions representing 28% of current office stock.
By value, Brisbane has seen total transaction values average 7% of our estimated CBD office capital stock over the past three years. Again, this is higher than either Sydney or Melbourne over the same period. Even at the GFC-induced trough in transaction volumes in 2009, Brisbane saw AUD 478.8 million of CBD sales or 3.7% of the estimated capital stock at the time.
Offshore investors’ increased interest in Brisbane assets is itself part of the explanation for the relative liquidity of the market. Investors have bought into the strong long-term demand story for the market, underpinned by a strong resource-driven economy and rapid population growth. However, the robust construction cycle over recent years also explains this interest. Brisbane CBD office stock has grown 19% over the past five years, more than any other major Australian CBD market, while the Brisbane near-city market has grown by an impressive 38% over the same period. This strong development cycle has created new quality assets with high sustainability credentials that have fitted well with the investment mandates of many major international investors looking for core assets.
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