• Queensland’s economic growth forecast to strengthen underpinned by the commencement of new metal mines and growth in education exports
• The Brisbane CBD office market recorded the greatest decline in vacancy of all Australian CBD office markets over the year to July 2019
• Supported by strong intrastate migration and employment growth, Queensland recorded the highest growth in retail trade of all Australian states over the year

Economy

The Queensland economy grew by 1.4% in the year to March 2019, down from 3.8% a year earlier. The easing in Queensland’s economic growth reflects the impact of the North Queensland floods and the ongoing decline in dwelling investment and the flow-on impacts to consumption. However, Queensland’s economic growth is forecast to strengthen through 2019 underpinned by the commencement of new metal mines (such as Rio Tinto’s Amrun bauxite mine and MMG’s Dugald River zinc mine) and continued strong growth in education exports. In line with more subdued domestic activity, the rate of job growth moderated over the past eighteen months, which has seen the unemployment rate rise to 10-year highs. However, beyond 2020, as domestic activity strengthens, labour market conditions are set to improve modestly, with a strengthening of jobs growth and the unemployment rate edging below 6% in 2022. Overall, rising export volumes and strong population growth will support Queensland’s economy over the short term.

Brisbane Prime Yields

Office Market

Spurred by infrastructure construction and employment gains, the Brisbane CBD office market recorded the greatest decline in vacancy of all Australian CBD office markets over the year to July 2019. The Cross-River Rail project which removed a number of existing buildings at planned rail station sites has resulted in the Brisbane CBD office vacancy falling to 11.9% as at July 2019, the lowest vacancy rate since 2013. In addition to the improvement of the CBD office market, the Brisbane Fringe office market recorded 32,600 sqm of net absorption over the first half of 2019, more than three times the long-term average as infrastructure companies expanded into the market. With a constrained pipeline of new supply across Brisbane’s office markets over the next three years, Urban Property Australia anticipates that vacancy will continue to trend down in the short-term. In addition to the professional services occupiers expanding underpinned by the city’s infrastructure investment program, similar to other office markets, coworking groups such as WeWork, Hub and Christie Spaces have driven much of the take-up of space in Brisbane this year. The recovering economy and falling vacancy rates have resulted in prime gross effective Brisbane CBD office rents surpassing $400/sqm for the first time since 2015 with incentives also stabilising. Having achieved the second highest level of investment volume last year, investor interest in Brisbane’s office markets remains healthy. Urban Property Australia has recorded $770 million transacted across Brisbane’s office markets over 2019 to date. This investor interest in the Brisbane CBD market has already resulted in yields continuing to firm across both prime and secondary grades. Over the year to July 2019, prime CBD office yields compressed by 20 basis points with secondary CBD office yields having compressed by 75 basis points.

Brisbane Office Vacancy Rates

Industrial Market

Solid investment in road infrastructure coupled with population growth continue to drive demand for industrial property from developers, investors and occupiers alike in Brisbane. With the construction having commenced on the Inland Rail Project (which will create increased transport and cost efficiencies) tenant demand remains robust. E-commerce continues to heavily influence take-up levels over the past year, having grown exponentially as consumers access the internet more regularly and choose to shop online more often. Over the year to July 2019, retail trade and third-party logistics accounted for 80% of all leasing transactions, the highest concentration of all Australian industrial markets. Having grown by 5%, in the 12 months to May 2019, Australians have spent over $29 billion online with this forecast to reach $40 billion annually by 2023. Over 2019 to date, Urban Property Australia has recorded $385 million sales of industrial property transacted in Queensland with a broad range of investors seeking to increase their exposure in Brisbane. Given the falling interest rates, investors have increasingly had to compete with owner-occupiers for properties. With a relatively limited supply of prime investment assets, the spread between prime and secondary yields have continued to narrow. As at July 2019, prime yields have tightened by 15 basis points this year to now average 6.25%, while in the secondary market, yields have compressed by 50 basis points to average 7.65%.

Brisbane Industrial Yields

Retail Market

Supported by strong intrastate migration and employment growth, Queensland recorded the highest growth in retail trade of all Australian states over the year to May 2019, increasing by 4.7%. Queensland’s retail trade growth was broad based led by spending in cafés and restaurants which increased by 9.7% with food sales growing by 5.7% and clothing sales up 3.5%; all boosted by the state’s growing population which reached record high levels as at December 2018 at 5.05 million. Looking ahead, Urban Property Australia expects retail trade in Queensland to continue to grow gradually in coming years, supported by an improvement in employment and wages growth. Retail transactional activity in Queensland has been particularly active with the state accounting for 30% of all retail transactions across Australia in 2019, the state’s highest share since 2012. Over 2019 to date, Urban Property Australia has recorded $694 million sales of retail property transacted in Queensland which has been underpinned by Stockland’s divestment of several non-core assets. Domestic purchasers have dominated retail property acquisitions in Queensland this year accounting for 83% of all assets sold. Despite the solid transactional activity, over the year to July 2019, of all Brisbane retail asset categories only CBD retail assets recorded yield compression with other retail asset types steady or expanding.

Brisbane Retail Property Sales Volume

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