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South East Queensland (SEQ) is the self-proclaimed “liveable gateway” for good reason – and as Centuria Metropolitan REIT’s (CMA) Fund Manager Grant Nichols explains, it’s also a region that offers promising opportunities for commercial property investment.
Why do we believe we’ll see increasing investor interest in this market? Strong population growth, a diversified and growing economy, and substantial investment in infrastructure should combine to boost demand.
We expect that these factors will swell the number of white-collar jobs – increasing demand for office space, which in turn will push down vacancy rates and raise rental incomes. This should be good news for office property investors – especially those like Centuria Metropolitan REIT (CMA) that is already well-positioned in the market.
SEQ stretches from the Gold Coast up to the Sunshine Coast and across to Toowoomba in the west. As Australia’s third-largest population zone, the region has been growing significantly, particularly Brisbane and the Gold Coast. Interstate migration figures show a pattern of steady net migration, with Queensland the only Australian state with consistent net inflows of people from other states. In the five years prior to the 2016 Census, over 220,000 people moved to the Sunshine State – mainly to SEQ where nearly 90% of population growth occurred1.
This is important for property investors because of its implications for demand, but the trend is interconnected with other favourable factors.
Queensland’s economy is diversified across a range of industries including agriculture, resources, construction, tourism, manufacturing and services. Over the past two decades, its economic growth has consistently exceeded the national average2 – and in our view this is likely to continue.
The resources sector is gaining momentum, and a significant pipeline of major infrastructure and development projects is helping propel economic and jobs growth, in turn increasing interstate migration and driving demand for both residential and commercial property3.
A strong infrastructure program delivers more than business and consumer amenity – it generates jobs, drives investment and facilitates population growth. The pipeline of infrastructure and development projects announced in the past few years is likely to have a material impact on the region – substantially improving its accessibility and amenity – most notably, Brisbane’s Queen’s Wharf precinct and the Cross River Rail.
Queen’s Wharf, touted as a “world-class entertainment precinct”, is an integrated resort development costing $3.6 billion and covering over 26 hectares with retail, dining, hotel and entertainment spaces. As Queensland’s biggest ever tourism project it will be a game-changer for Brisbane, attracting overseas as well as local visitors4. Estimated to contribute $1.69 billion annually to the economy, it will employ more than 2000 people during construction and an estimated 10,000 once operational5.
The Queensland Government’s number one infrastructure project, the $5.4 billion Cross River Rail, comprises a new 10.2km rail line between Dutton Park and Bowen Hills, which includes a 5.9km tunnel under the Brisbane River and CBD. It’s the first major rail infrastructure investment in the inner city since 1986 and is set to generate urban renewal, economic development and the revitalisation of inner-city precincts6.
These factors indicate a region poised for growth – and for growing commercial property demand. CMA’s portfolio has a significant exposure to the area in general (six SEQ assets with a combined book value of over $480 million)7 with many of the individual assets located in those parts of Brisbane set to benefit most from these developments.
Our view is that Brisbane office markets, where five of CMA’s assets sit, are continuing to improve, with vacancies hitting a five-year low – indicating increasing tenant demand – and continued yield compression – demonstrating strong investment demand. Office sales hit the highest level in a decade during 2018 (at $2.35 billion), increasing 60% from 20178.
With the strong outlook for SEQ, we expect the region will continue to attract tenants and investors alike.
1 Australian Bureau of Statistics. Migration, Australia, 2016-17
2 Oxford Economics Feb 19
3 ABS 3101.0
4 Courier Mail, March 1, 2019. Inside the $3.6 billion Queen’s Wharf Construction Site
6 Cross River Rail: Unlocking the bottleneck
7 As at 31 December 2018.
8 Colliers International. CBD Office. First Half 2019
Disclaimer
This article was issued by Centuria Property Funds Limited (Centuria Property Funds) (ABN 11 086 553 639, AFSL 231 149), a wholly-owned subsidiary of Centuria Capital Group (ASX: CNI), as Responsible Entity for the Centuria Metropolitan REIT (ARSN 124 364 718). The information in this article is general information only and does not take into account the financial circumstances, needs or objectives of any person. Centuria Property Funds is the responsible entity of a number of listed and unlisted property funds, each of which are issued under a product disclosure statement (PDS) that is available on CNI’s website centuria.com.au for all funds open for investment. An investment in any of Centuria Property Funds’ fund carries risks associated with an investment in direct property including the loss of income and capital invested. The risks relating to an investment are detailed in each Fund’s PDS and Centuria Property Funds strongly recommends that the PDS be downloaded and read before any investment decision is made. Centuria Property Funds receives fees from investments in its property funds. Past performance is not a reliable indicator of future performance.