The latest Brisbane Cityscope Scorecard shows the combined value of commercial sales rose to $1.7 billion in the year to February 2018. This is more than twice the value of commercial sales in the previous year, at $695 million.
CoreLogic’s Cityscope regions are closely tracked CBD areas across Australia, with up-to-date records of commercial transactions. The Brisbane Cityscope region is defined as the area north of the Brisbane City Botanic Gardens, stretching north to Roma Street Station, and is bound by the Brisbane River to the east and west.
Undoubtedly, a higher number of office transactions was partially behind the significant increase in combined commercial sales values. The year to February 2018 saw commercial 17 buildings transacted in the Brisbane CBD, up from 12 in the previous year. The number of strata office spaces increased to 36 over the year from 26 in the previous 12 months.
The highest value sale of the year, Santos Place, reflects the high quality of stock transacted: the 6 Star Green Star building is prime office space, constructed in 2009. The building was acquired for $370 million by Charter Hall, acting on behalf of the Singaporean government’s sovereign wealth fund, GIC.
400 George Street, which was also completed less than 10 years ago, sold in July 2017 for $210 million. Together these two transactions accounted for 34% of the total sales value in commercial property in Brisbane’s CBD.
Despite these large acquisitions, tenant demand appears relatively subdued on the surface. The Property Council’s 2018 Office Market Report revealed that office vacancy in the Brisbane CBD has almost doubled over the last 5 years. The percentage of vacant office space rose from 9.3% in January 2013 to 16.2% at January 2018. However, the Property Council attribute the decline largely to the office-scape being in transition, with reduced demand in lower-grade stock, and strong expressions of interest for higher grade space.
The sale of Santos Place, 400 George Street and 5 other buildings in the CBD worth over $100 million in 2017, speaks to the high levels of capital bolstering Australian commercial real estate sales and development.
The participation of funds management organisations, the increased globalisation of investment and a continued low interest rate environment enable higher bids for prime commercial real estate, and has seen redevelopment of office sites across the capital city CBDs.
However, with economic conditions strengthening across the United States, Europe and Asia, the interest rate environment is, gradually, set to change. Markets expect a rise in the cash rate towards the end of 2018 or beginning of 2019.
When interest rates do start to rise, this may have the effect of slowing activity in Brisbane’s commercial market, particularly as higher transaction prices have a dampening effect on yields.