Australian Property Market Update | November 2017

Residential

Residential property prices across Australia remained steady in October, with a fall in Sydney house prices levelling out increases in other cities resulting in no change to the national average.

Sydney’s residential property market fell 0.5% in October and has recorded its first rolling quarter of negative growth since May 2016, with prices falling 0.6% over the past three months. However, the story isn’t all negative; prices are still higher than they were 12 months ago with values rising by 7.7%.

Other capitals which recorded negative growth in the month were Darwin and Canberra, which saw falls of 1.6% and 0.1% respectively while Darwin also saw prices fall by 5.7% over the past 12 months.

Hobart continues to outperform the nation, with the city recording a 0.9% price increase in October. This price increase continues a strong year for prices in Hobart which has recorded a 12.7% rise in values over the past 12 months, outperforming all other Australian capital cities.

A price rise of 0.5% in the nation’s second-largest property market, Melbourne, offset falls in Sydney to ensure values across the nation didn’t fall overall for the month. It has been a strong year for Melbourne’s market, with high interstate migration and strong jobs growth fuelling an 11.0% rise over the past 12 months.

Weakness in Brisbane’s apartment market saw residential values remain constant in October. This continues a trend of steady growth, with values rising a modest 0.6% in the previous quarter and 2.7% over the past 12 months.

Commercial

Low vacancy rates have led to continued confidence in the commercial property sector, according to NAB[1], with their commercial property index recording a sentiment of +18 points. Despite a fall of 5 points, this is still 2 points above long-term averages.

Outlook is strongest for CBD hotels, with New South Wales and Victoria the most upbeat states. Expectations for capital growth lifted in all sectors, with strong expectations for rental yield growth in the Office sector.

The strong sentiment is backed up by large sale volumes in major markets, with CoreLogic[2] reporting commercial sales of $1.268 billion in Melbourne in the September quarter, up from $664.6 million in the June quarter.

In Brisbane, there was also a marked increase with sales totalling $574.6 million in the three months to the beginning of November 2017; this compared with $340.3 million in commercial sales for the previous three months. During this period, Trilogy Funds completed the purchase of a $22.65 million commercial building in Cannon Hill, the single asset of the Cannon Hill Office Trust.  Also in Brisbane, excavation has started on the Queen’s Wharf development, which, when completed, will add 50 restaurants and bars, 1000 hotel rooms and 2000 apartments to Brisbane’s CBD.

Australia’s fourth largest metropolitan office market, Parramatta, currently boasts a 0% vacancy rate, with the $200 million Westfield Parramatta and the $2 billion Parramatta Square developments set to contribute to the anticipated 125,000sqm of new retail space in the pipeline. These redevelopments are seeing national brands look to Parramatta as a viable relocation destination for their office spaces, contributing to the continued revitalisation of the Parramatta CBD[3].

Industrial

Growth in foreign investment in industrial stock is driving demand in the sector, which in the face of supply constraints is recording strong growth[4].

Driven by investment in major pieces of infrastructure, such as the Melbourne Metro, the Sydney Metro and the Badgery’s Creek Airport, Sydney and Melbourne are the best performing industrial markets in Australia. Sydney is the stand-out performer, with year-on-year capital growth hitting 15% for prime grade industrial assets and 26% for secondary grade assets.

Heavy investment in industrial stock in Melbourne has resulted in a pipeline of 336,551sqm of industrial floorspace currently under construction or approved. Until this supply becomes available, a lack of available floorspace will see rents rise in Melbourne towards the end of 2017 and into 2018.

In Brisbane, prime grade rents have remained stable at $105/sqm in the quarter ending September 2017. According to JLL[5], gross take up hit 204,220sqm in the September quarter.

Industrial vacancies are falling in Adelaide as employment improves in South Australia, with unemployment hitting a five year low of 5.7%.  Vacancies have hit a new low of 2.88%, down from 3.08% in March.

The federal government’s $10 billion planned Inland Rail project, which will create a direct freight link from Melbourne to Brisbane, is set to transform industrial property in the regions through which it passes[6]. Increased activity along the route from freight providers is likely to provide a boost to industrial property values in adjacent areas.

Disclaimer

This article has been compiled using public sources that are considered reliable but are not guaranteed. This article has been prepared as general information only and does not take into account any of your personal circumstances, including your objectives, financial situation or needs or seek to provide a personal recommendation to you.

Sources

[1] https://business.nab.com.au/wp-content/uploads/2017/10/commercial-property-survey-market-overview-q3-2017.pdf

[2] https://www.corelogic.com.au/news/commercial-market-update-melbourne-cityscope#.WgkuVVuCyUk

[3] https://www.theurbandeveloper.com/new-trends-bring-parramatta-retail-property-market/

[4] http://www.colliers.com.au/find_research/industrial/industrial_-_second_half_2017/

http://www.jll.com.au/australia/en-au/research/566/jll-brisbane-industrial-market-overview-3q17

[5] http://www.jll.com.au/australia/en-au/research/566/jll-brisbane-industrial-market-overview-3q17

[6] https://www.theurbandeveloper.com/melbourne-brisbane-inland-rail-set-rattle-industrial-market/