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News release

BRISBANE

From Resource Boom Ground Zero to a Sustainable Economic Future

JLL White Paper “Re-Balancing the Queensland Economy” considers implications of the new era for commercial real estate


​​​Between 2000 and 2014 Queensland was Ground Zero for the biggest resources boom in history and while this era generated unprecedented investment in mining, energy and infrastructure leaving the state’s productive capability enhanced for the long term, it also came with costs. A new White Paper from JLL titled, Re-Balancing the Queensland Economy considers implications for commercial real estate in 2016 and beyond. 

JLL Managing Director Queensland Geoff McIntyre, who co-authored the White Paper with JLL’s Strategic Director of Research Carol Hodgson, said the benefits of the decade-long boom are real and permanent and had been well documented, but were not without costs. 

“The strong AUD redirected tourism, both international and domestic, away from Queensland, rural sector exports were pressured by a rising exchange rate, business, tourism and other service sectors, including tertiary education were also adversely affected by wage competition. 

“Now the Australian economy, and Queensland in particular, are repositioning toward a more sustainable and economically diversified future. Business services, IT, education and tourism are all growth sectors for the future and the lower AUD is attracting income into Queensland as well as international investment in assets and infrastructure.“ 

Carol Hodgson added “Queensland is often viewed as a mining state along with Western Australia. However, looking at the economic breakdown of Queensland highlights that the economy is closely aligned with the Australian economy as a whole. It is this diverse economy which will drive a broad based recovery as the effects of the large scale LNG construction projects fade away.”



“Looking back at previous cycles can help us to understand the current situation. The household sector, strongly linked to house price growth, were key drivers in the economic recovery in the early 90’s and the early 00’s. This time around the consumer sector is more cautious and Brisbane has yet to experience the strong house price growth recorded in Sydney. However, affordability in Brisbane remains a key attraction and the outlook for house prices is for modest growth which should help boost the economy,” she said.

Reflecting on the impact on the commercial property market, Geoff McIntyre continued “Over the next decade, financial rewards will accrue to those investors who are best positioned to take advantage of the transition of the Queensland economy onto a long-term and sustainable growth path.” 

He said multiple drivers of growth should provide a platform for the Queensland economy to deliver a steady recovery, a replay of the early 1990’s. “Investment opportunities exist in every type of market, although every strategy needs to take account of current and anticipated market trends,” he advised. 

The White Paper, a detailed examination of the boom and recovery strategies for each commercial property sector, will be released on Friday, July 22.

The office sector – counter-cyclical and alternative strategies

Counter cyclical – don’t wait too long
The Brisbane office market offers a significant yield differential to Sydney and since the start of 2014 this has widened as Brisbane’s leasing market has weakened. This may open opportunities for counter cyclical investing, particularly as the physical market recovers. Additionally, there is evidence that shows the optimum time to invest is early in a recovery period. 

Look outside the ‘Golden Triangle’
The majority of new development in the recent cycle is located beyond the bounds of the CBD’s famous Golden Triangle, with the “flight to quality” in office fit-out and efficient use of space taking priority over location. As a result - tenants are moving. Further, new retail projects will add significant amenity beyond traditional precincts meaning investors may take the opportunity to buy outside the tightly held Golden Triangle in anticipation of future re-rating possibilities. 

Secondary office stock – immediate investment opportunity
Brisbane CBD has a high proportion of secondary stock relative to Sydney and Melbourne which presents an immediate investment opportunity, primarily due to the gaps in investment yields between prime and secondary assets. Owners who are able to reposition or upgrade assets can expect to be well rewarded. Furthermore, the funding environment for secondary grade assets is challenging, resulting in limited participation. However as Brisbane’s vacancy levels move back towards equilibrium JLL expects the yield spread to narrow quickly. Well located assets that have sound structural characteristics will be best positioned to leverage a renewed appetite for secondary assets. 

The Retail Sector – new projects, new locations

Non-core CBD retail – look just beyond
Queens Wharf, plans for Albert and Edward Street and ISPT’s new developments on Queen Street are set to significantly improve the dynamic of the CBD. Opportunities lie in buying just beyond the ‘core retail’ precinct. 

Bulky goods – large format retail and homemaker centres
Recently sub-regional and neighbourhood centres have attracted much investor interest resulting in high sales volumes. Interest in Bulky Goods has started to pick up and yields remain attractive, higher than neighbourhood yields.  Opportunities are available for investors who have the capability to actively manage and re-position existing assets. A prime example of this is the acquisition of a traditional ‘category killer’ site such as a Masters store and splitting the property up into several tenancies, generating higher cash flows.

Looking outside of Brisbane
While parts of regional Queensland have been negatively impacted by the fall in the resources sector, JLL believe there’s solid long term prospects. Cairns is expected to benefit from the lower AUD and increased tourism. The airport is currently being redeveloped and has direct flights from China. Townsville has been impacted by the resource sector; however, its economy is surprisingly diverse and the proposed $250 million Townsville stadium, as well as the Federal Government’s 25 year deal to increase the number of Singaporean military personnel on rotation in Australia from 6,000 to 14,000 (resulting in a $2.25 billion expansion of training facilities) are both set to support its long term economic performance. 

The Industrial Sector – Active asset management and infrastructure Spin-Offs

Opportunities in secondary stock
While a high level of institutional developer land ownership plus a low number of pre-lease requirements and strong yield compression has allowed institutional developers to offer very competitive rental rates in order to increase funds under management recently, there are signs that the downward pressure on rental rates has abated and the expected improvement in the economy should support increased tenant activity.
There is an opportunity for investors - secondary assets which often require some active asset management to mitigate leasing risk or capital expenditure are still competitively priced, so those investors with strong management capabilities will be able to take advantage.

Locations near the port
The Trade Coast, particularly areas near the Port, offer potential for capital value appreciation as land for future development is very limited. Although Trade Coast rents are currently higher than comparable rents in Northern and Southern precincts there is potential for an increased differential, as has been recorded in Sydney. 

Industrial parks
JLL believes business park prospects in the core Trade Coast, Inner North and Inner South are positive. Land prices are now starting to rise and this style of product will be effective in making a development deal an attractive proposition.