Brisbane's improving office market unlikely to provide boost for residential developers
An improving Brisbane office market is unlikely to provide developers a reprieve from a declining apartment market
Despite close to 1,100 apartments being withdrawn from the future inner Brisbane supply pipeline over the last year for office development, an improving Brisbane office market is unlikely to provide developers a reprieve from a declining apartment market, according to global property services firm JLL.
JLL's Head of Residential Research – Australia, Leigh Warner said, "There is growing interest in office development across Brisbane, but it has been largely driven by specific tenant requirements and we doubt there will be sufficient depth of demand for this to become a widespread theme across inner Brisbane."
Nevertheless, the Brisbane apartment market supply pipeline is shrinking. Supply fears have led financiers to put the handbrake on development finance and, with few new project commencements, construction levels are expected to return to more normalised levels during 2018 and 2019.
"In the meantime, further downward pressure on apartment prices and rents are expected in the medium term. Market balance should be restored relatively quickly, but this is dependent on the continued improvement of the state economy and subsequent improved population growth to soak up excess supply," said Mr.Warner.
JLL's October Brisbane Apartment Market Indicators Report states that despite declining market conditions and negative press, there remains no evidence of mass settlement failure within the inner Brisbane apartment market.
Mr Warner said, "Settlement periods have been protracted in many instances, but settlement failure rates remain fairly normal, particularly for high quality projects. In those instances where settlement failure has occurred, developers have had sufficient settlements to pay off their debt obligations and have looked to rent out and slowly sell down any remaining residual stock."
JLL's QLD Head of Residential Management, Tina Grey said "As a manager of over 2,000 new and established apartments across the Brisbane Metropolitan area, we are seeing increased downward pressure on rents, particularly for older one-bedroom stock. Also incentives for new stock exceeding 2 weeks rent plus cash or furniture incentives remain very common."
Mr Warner said, "With market fundamentals remaining soft, counter-cyclical demand for inner-city apartment development sites appears to be on the rise. However, unrealistic pricing expectations by vendors have meant transaction volumes have remained low. Sales of sites with development potential for 50 to 120 apartments are expected to improve, but vendors will have to meet or be forced to meet the market first."