Property investors must look beyond Sydney and Melbourne: CBRE

Property investors must look beyond Sydney and Melbourne: CBRE

2 March 2018

Australia’s continued low growth economic environment will motivate commercial property investors to hunt for counter-cyclical opportunities and alternative asset classes to unlock hidden value in real estate, says the latest CBRE property market report.

CBRE’s Australian 2018 Real Estate Market Outlook predicts all major markets in the commercial office sector will witness declining vacancy rates and improving rental growth over the next 12 months.

CBRE Research Associate Director Bradley Speers said 2018 would be the cyclical peak for Sydney and Melbourne—underpinning greater investment interest in locations such as Brisbane and Perth.

“Brisbane in particular has already emerged as a counter cyclical investment opportunity—and will remain so throughout the year. We will see Perth and Canberra come more under the radar in 2018, as these markets become increasingly viewed as a favourable long-term investment hold strategy,” Mr Speers said.

CBRE’s Executive Managing Director, Capital Markets, Pacific, Bruce Baker said both Brisbane and Perth were already attracting significant levels of interest from capital, particularly in the core and core plus office sector.

“The availability of suitable investment product will be the main impediment to both these markets achieving record sales volumes in this sector in 2018,” Mr Baker said.

“Both Brisbane and Perth are set to benefit from the rebound in resource prices, which will flow through to both economies and are predicted to generate significant white-collar employment growth.”

The report shows disruption would also be a key theme shaping the Australian property industry in 2018, with occupiers and owners alike now recognising the importance of embracing change to create greater value.

“The traditional real estate premise of ‘location, location, location’ is no longer everything for business success. Companies are increasingly understanding that better business performance now starts with understanding how technology could reshape their business,” Mr Speers said.

“Smart buildings will be the norm before long. They will provide greater efficiency, improved health outcomes and allow landlords and asset managers the time to focus on investment decisions,” said CBRE Senior Managing Director, Pacific, Amanda Steele.

According to Cushman & Wakefield’s Australia Investment Marketbeat Q4 2017 report, investors will still prize core assets, but “are likely to continue to search for higher returns and therefore further explore core-plus markets as well as alternative asset classes.”

Meanwhile, Fairfax Media predicts data centres, automated industrial and logistics assets, and the healthcare sector could give offices and hotels a run for their money this year.

Consultancy firm Frost & Sullivan predicts Australian data centre services market, mostly centralised in Sydney and Melbourne, will grow by 13.2 per cent a year to $2.51 billion by 2021.

Yields can range from 6 to 8 per cent, JLL’s lead data centre director Jordan Berryman said. This is compared with a 4.95 per cent rental return for a Sydney CBD A-grade office, according to Savills.

Meanwhile, the explosion of online shopping, the industrial sector saw record growth in 2017. And with e-commerce in its infancy, the industry is ripe for further growth and disruption.

Interest in healthcare as a real estate investment has increased in the past two years, JLL’s manager of healthcare and seniors living Simon Quinn said.

“The strong demand drivers are the ageing population and the nature of healthcare being non-discretionary spending, typically with private hospitals, GP medical centres and day surgeries as well,” he said.

He added that medical properties have defensive income profiles, long leases and quality tenants.