Brisbane at the bottom of the cycle: API survey

The latest Australian Property Institute Property Directions Survey has found the commercial property market in Brisbane has declined over the past 12 months and is currently at the bottom of the property cycle.  

In contrast, the Sydney and Melbourne commercial property markets saw little change in the 12 months to October.  

The six-monthly survey, by the API’s NSW branch, measures the sentiment and expectations of valuers, fund managers, property analysts and property financiers on a range of topics affecting the property industry.  

It found that, generally, commercial, industrial, retail and residential property markets in Sydney, Melbourne and Brisbane are progressing along the upswing of the property cycle and will do so over the next two years.  

Brisbane retail property is seen as having begun the upswing, and remaining at a similar stage next year and progressing further along in two year’s time. That city’s industrial and residential property sectors are also seen as having begun the upswing and advancing along it next year.  

However, 76% of respondents believe effective rentals will decline in the Brisbane CBD – a strong deviation from the previous survey in May. The Melbourne figure was 68%.  

A stronger performance is predicted over the next two year’s making industrial and residential the strongest performing of the four classes of property in Brisbane. The residential property markets are furthest along the upswing in Sydney and Melbourne.  

Tyrone Hodge, the API’s NSW president, said most respondents were confident the residential property market in the three cities would continue to surge ahead. “Respondents saw this improvement in the residential property market continuing in the next two years, while 70% believe that the changing Australian dollar will have a positive impact on foreign investment in Australian property.  

“Respondents believe commercial property markets in the three cities will improve slowly over time, but that Sydney will be the strongest performing market in the next two years,” Hodge said.  

Respondents indicated that, over the next 12 months, they expect market values for commercial properties in the Sydney CBD, Sydney suburban CBDs and Melbourne CBD to increase above CPI, but at a slower rate than predicted in the previous Australian Property Directions Survey.  

“The tough conditions are reflected in the greater incentives required and slowing market values and with rental increases at a slower pace indicated by survey respondents,” he said.  

A majority of respondents forecast at least moderate investment growth for both the Australian listed and unlisted property trusts and syndicates over the next 12 months but fewer respondents predicted strong growth than in the May survey. Overall, the expected growth for domestic trusts and syndicates to remain strong over the next 12 months.  

Most expect at least moderate investment growth in international listed and unlisted trusts and syndicates in the next 12 months.  
For new leases, respondents were split on the forecast movement of effective rents over the next six months in Sydney. “56% of respondents believe that effective rents (which take incentives into account) will remain stable, while 44% of respondents believe they will decline,” Hodge said.  

All respondents saw leasing incentives as a feature of capital city rental markets.  

Across the Sydney and Melbourne CBDs and suburban CBDs, and the Brisbane CBD,

there is a trend towards increasing incentives. Most respondents reported leasing incentives of 20-29%, with leanings towards levels of more than 30% across prime, A grade and lower grade properties. Overall, respondents believe that, even while incentives grow, rents are unlikely to benefit.  

79% of respondents believe there will be moderate investment growth in both listed and unlisted domestic trusts and syndicates. Respondents indicated that they are continuing to see greater inflows from domestic institutions, while others believe that self-managed super funds will boost the supply of funds into the unlisted sector.  

As to major factors impacting the Australian economy, most respondents believe that interest rates and inflation will be similar for the next 12 months, while a large majority believe they will trend higher over the next three years.  

Many believe that the federal election result provides more certainty of government which has positively influenced business confidence. Others believe that the recovery of the share market will result in increased investment in property by superannuation funds to balance their portfolios.