LOCAL and overseas institutions which have been priced out of the southern industrial markets could push Brisbane investment grade property to record low yields in 2017.
JLL head of industrial Queensland Aaron Bates said prime industrial yields compressed further in 2016, as investor demand continued to outweigh asset supply.
“Further compression is expected in 2017, with prime assets very likely to break into the 5 per cent bracket,” he said.
“That has never happened here before. We’ve seen it happen in Sydney but we haven’t seen it in Brisbane, but it will happen here.
“While Sydney is on everyone’s shopping list, Brisbane is generally their second-preferred destination, and it has good value relative to the southern markets
“We don’t expect the supply of large assets to increase substantially this year, and investors are aware they’ll need to adjust their return hurdles further in order to successfully compete.”
Last year Queensland notched up $579 million in major industrial sales, a 42 per cent decline, while transaction volumes fell 32 per cent in the same period.
However, Mr Bates said the decline was due to a lack of stock. Investor demand remained strong with institutions allocating huge levels of capital to purchase industrial property.
He said in the smaller end of the industrial market a number of sophisticated private investors, some of whom have owned multiple properties for 15 years plus and resisted selling were now talking about asset disposal and reinvesting elsewhere.
“This will provide buying opportunities between $5 million and $30 million over the next few months,” Mr Bates said.
“However, none of these assets will satisfy the big-ticket mandates from the offshore groups and domestic real estate investment trusts, who remain keen on the Brisbane market.”
Mr Bates said gross take-up in 2016 was 405,900sq m, only 6 per cent below the 10-year average of 432,665sq m. The majority of take-up was in Brisbane’s southern precincts
“The full year take-up will probably surprise some people,” he said.
“At midyear, take-up was sitting at about 188,000sq m after only 55,000sq m leased in the second quarter.
“But strong design and construct activity, and significant leasing transactions on existing buildings along the Logan Motorway helped to boost the second half stats, and we’re seeing this good momentum carry over into 2017.”