SEQ Commercial Markets

Alistair Weir

16 November 2017

Source: Raywhitebrisbanecbd.com.au

Source: Herron Todd White

Source: Brisbanedevelopment.com, Herron Todd White

It’s All Happening… Queens Wharf

Source: Herron Todd White, Queensland Government

Cross River Rail

Source: Courier Mail, Herron Todd White

Howard Smith Wharves

Source: Brisbanedevelopment.com, Abc.net.au, Courier Mail, Brisbanetimes.com.au

Brisbane Live

Airport Runway Duplication

Brisbane Metro

Southbank Parkland Expansion

Building Activity

Source: Rlb.com

Source: Australian Bureau of Statistics, Deloitte Access Economics

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

2012 2013 2014 2015 2016 2017

Gro

wth

Year

Queensland New South Wales Victoria Western Australia

Gross State Product

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

60.00

70.00

80.00

90.00

100.00

110.00

120.00

130.00

140.00

Oct 07 Oct 08 Oct 09 Oct 10 Oct 11 Oct 12 Oct 13 Oct 14 Oct 15 Oct 16 Oct 17

Bu

sin

ess C

on

fid

en

ce

Co

nsu

me

r S

en

tim

en

t

Year

Consumer Sentiment Business Confidence

Optimistic

Pessimistic

Business Confidence and Consumer Sentiment

Source: Property Council of Australia

CBD Office Markets Source: Brisbanedevelopment.com

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

-80,000

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Tota

l V

ac

an

cy R

ate

(%

)

Su

pp

ly/

Ne

t A

bso

rpti

on

(sq

m)

Year

New Supply Net Absorption Vacancy

Forecast

CBD Markets Improving

Source: Property Council of Australia

11.8%

11.6%

20.0%

23.8%

16.1%

21.1%

13.9%

18.6%

17.5%

16.8%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Prime Grade

A Grade

B Grade

C Grade

D Grade

% Vacancy

Bu

ild

ing

Gra

de

Jul-16

Jul-17

Prime and A Grade Vacancy Improving

Source: Property Council of Australia

2015 2017

Leasing Report

Source: Herron Todd White

15.7%

5.9%

6.5%

11.4%

21.1%

16.1%

8.2%

22.5%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Brisbane CBD

Sydney CBD

Melbourne CBD

Canberra

Perth CBD

Adelaide CBD

Hobart CBD

Darwin CBD

% Vacancy

N.B. As at July 2017

Total Vacancies Across Australian Cities

Source: Property Council of Australia

Source: Savills, Landmark White

$0

$200

$400

$600

$800

Re

nt

($)

pe

r sq

m

Quarter

Gross Face Gross Effective

A Grade CBD Office Rents

Rentals ($/m2) Brisbane – CBD

Premium

Gold Coast

A Grade

Sunshine Coast

A Grade

Gross Face Rents $795 - $875 $375 - $470 $330 - $450

Gross Effective Rents $490 - $630 $275 - $390 $250 - $390

Outgoings $125 - $195 $80 - $120 $40 - $80

Net Effective Rents $365 - $435 $195 - $270 $210 - $310

Sales Analysis

Yields (on Net Face rents) 5.75% - 6.25% 8.00% - 9.00% 8.00% - 9.25%

Sales Analysis Rates $10,750 - $13,500 $3,000 - $5,500 $3,000 - $5,500

Key Parameters for Office Markets

Source: Savills

Source: Architectureanddesign.com.au

Fringe Office Markets

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

-40,000

-20,000

0

20,000

40,000

60,000

80,000

100,000

Tota

l V

ac

an

cy R

ate

(%

)

Su

pp

ly/

Ne

t A

bso

rpti

on

(sq

m)

Year

New Supply Net Absorption Vacancy

Forecast

Brisbane Fringe Office Markets

Source: Property Council of Australia

11.1%

17.9%

18.4%

11.8%

13.9%

11.0%

20.7%

11.6%

12.6%

10.6%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Inner South

Milton

Spring Hill

Toowong

Urban Renewal

% Vacancy

Jul-16

Jul-17

Brisbane Fringe Vacancy

Source: Property Council of Australia

Walker Corporation

LaSalle Investment Management

Montpelier Rd

801 Ann St

Fortitude Valley

66 – 69 Montpelier Rd,

Bowen Hills

Fortitude Valley Metro

Redevelopment

Urban Renewal Proposed Projects

Source: Google Images, Brisbanedevelopment.com, Australian Financial Review

Sale Date: August 2017

Sale Price: $47,000,000

Analysed Yield: 6.6%

Passing Yield: 7.53%

Rate $/sqm lettable area: $7,162

WALE (By Income): 5.74 years

Good Demand For Quality Fringe City Properties

Source: Herron Todd White

Source: Scentregroup.com

Retail

Source: Melissahoyer.com

The Changing Face of Retail

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Re

ven

ue

($

Mil

lio

n)

Year

Online Revenue Growth Australia

Source: Australian Bureau of Statistics

Source: Google Images

Source: Macquarie Bank

Amazon Revenue Growth R

eve

nu

e (

$ B

illi

on

)

Year

Source: Daily Mail Australia

1. JB Hi Fi

2. The Iconic

3. Dan Murphy’s

4. Kogan

5. Catch of the Day

6. Appliances on line

7. Booktopia

8. Red Balloon

9. Temple and Webster

10. Hard to Find

Australia’s Top 10 Online Retailers

Source: Herron Todd White

• Will aggregate online shopping and accelerate growth

• Large format retail and electronic retailers under pressure

• Retail prices will fall

• Retail rents to stagnate at best or fall

• Retail yields to soften

• Increased demand for near city logistics facilities

• Major retail to undergo transformation

Likely Impacts of Amazon Here

Industrial Source: Goodman Australia

Source: Goodman Australia

Source: Nearmap

0

100

200

300

400

500

600

700

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Tota

l N

um

be

r o

f S

ale

s

Tota

l S

ale

s V

alu

e (

$M

illi

on

s)

Year

Total Value Bris. Sales Total Value Outer Sales Total No. of Sales

Brisbane Industrial Sales 2007-2017

Source: Pricefinder

Outer LA's comprise Ipswich City Council, Logan City Council, Moreton

Bay Regional Council and Redland City Council.

*Note: 2017 sales are actual results as at 1 October 2017.

Sales can take up to six months to be recorded by DNRM.

Source: Colliers, Savills

$0

$20

$40

$60

$80

$100

$120

$140

$160

Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17

Re

nt

($)

pe

r sq

m

Year

Prime Net Face Prime Net Effective

Prime Industrial Rents

Source: Herron Todd White Research

Rents (Net $/m2) Brisbane Gold Coast Sunshine Coast

Prime $105 - $140 $130 - $160 $100 - $150

Secondary $60 - $110 $90 - $120 $80 - $110

Yields

Prime 6.25% - 7.25% 6.50% - 7.50% 7.00% - 8.00%

Secondary 8.00% - 9.75% 7.00% - 8.00% 7.50% - 9.00%

Other 9.00% plus 8.00% plus 9.25% plus

Sales Analysis Rate ($/m2)

Prime $1,300 - $2,300 $1,600 - $2,200 $1,400 - $1,800

Secondary $600 - $1,450 $1,000 - $1,600 $1,000 - $1,400

Land Rate ($/m2)

Prime $220 - $350 $400 - $500 $300 - $350

Secondary $150 - $220 $250 - $350 $120 - $220

Key Parameters for Industrial Markets

• Trade Coast and South West corridor performing best

• Rents remain flat and declining in secondary areas

• Move to quality buildings

• Incentives now a common feature

• Inland rail to drive development at Bromelton and Acacia Ridge

• Second runway to drive demand in Eagle Farm

Key Takeaways

Investment Markets Source: Courier Mail

Have We Hit The Peak?

Source: The Urban Developer

Officeworks North Lakes

Sale Date: October 2017

Sale Price: $7,093,000

Yield: 4.8%

10 year lease-back

1,661 square metres GLA

Source: Reserve Bank of Australia, Property Council of Australia , Herron Todd White Research

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17

% Y

ield

Year

Office Industrial Neighbourhood Retail Commonwealth Government 10 Year Bond

Prime Yields vs. Commonwealth Government

10 Year Bond Rate

Source: realcommercial.com.au, Google Images

Address Sale Date Sale Price Land Area

(m2)

Lettable

Area (m2)

WALE

(by Income)

Analysed

Market

Yield

$/m2

Lettable

Area

353-357 Samsonvale Rd,

Warner Oct 2017 $78,350,000 2,006 11,477 Unknown 5.70% $6,827

125-143 Brisbane St,

Beaudesert Jul 2017 $16,850,000 14,230 4,453 6.49 years 6.38% $3,784

677-685 Old Cleveland Rd

East, Wellington Point Jan 2017 $18,125,000 6,099 2,616 5.00 years 6.89% $6,929

Retail

Commercial Sales

Address Sale Date Sale Price Lettable

Area (m2)

WALE

(by Income)

Analysed

Market

Yield

IRR

$/m2

Lettable

Area

120 Edward St,

Brisbane Jun 2017 $142,650,000 15,271 3.61 years 5.66% 5.32% $8,307

189 Coronation Dr,

Milton Aug 2017 $17,500,000 2,657 3.77 years 6.55% 6.86% $5,476

96 Mt Gravatt-Capalaba

Rd, Upper Mount Gravatt Feb 2017 $29,750,000 7,397 3.47 years 8.69% 7.88% $4,020

Source: realcommercial.com.au, Google Images

Industrial

Address Sale Date Sale Price Land Area

(m2)

Lettable

Area (m2)

Lease Term

Certain (by

Income)

Analysed

Market

Yield

$/m2

Lettable

Area

Proposed Lot 2001

Metroplex Westgate, Wacol Jul 2017 $35.25M 32,740 9,625 10.00 years 6.24% $3,662

1 Sulphur St,

Narangba Jun 2017 $10.565M 16,230 6,972 10.00 years 7.59% $1,515

655 Macarthur Av,

Pinkenba Aug 2017 $8.65M 10,565 3,629 10.00 years 6.94% $2,384

Source: realcommercial.com.au, Google Images

Child Care Source: Goodstart.org.au

Source: Realcommercial.com.au

Service Stations

Medical Source: Google Images

• Batten down the hatches for Commercial and Residential Development for a

few years

• Retail in for years of upheaval across many sub-sectors

• Industrial solid and to grow steadily

• Investment yields to remain stable or start to soften

• Very little foreseeable rental growth in any sectors in SEQ

Key Takeaways

Source: Cox Architecture

Gold Coast

200,000m²

250,000m²

300,000m²

350,000m²

400,000m²

450,000m²

500,000m²

Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Sq

ua

re m

etr

es

Year

Occupied Vacant

11.3% 24.1%

4.5%

PCA Occupancy – July 2017

Source: Property Council of Australia

Occupied

88.7%

Broadbeach

2,617m² Bundall

9,761m²

Robina / Varsity

9,271m²

Southport

20,729m²

Surfers

10,606m² Vacant

11.3%

Gold Coast Office Vacancy Spread

Southport 14.0% Broadbeach 8.7%

Surfers Paradise 15.1% Bundall 11.5%

Robina / Varsity 6.8%

PCA Occupancy – July 2017

Source: Property Council of Australia

Source: Gold Coast Bulletin, Scentre Group

Proposed Coomera Town Centre

130 Bundall Rd, Bundall

Sale Date: Jun 2017

Sale Price: $8,000,000

Rate $/sqm: $2,160 per square

Average Rent: $285/sqm (estimated)

WALE: 0.74 years (52% vacant)

Yield: IY: 1.61% AY: 7.33%

183 Varsity Pde, Varsity Lakes

Sale Date: Feb 2017

Sale Price: $11,800,000

Rate $/sqm: $3,742 per square metre

Average Rent: $403

WALE: 2.25 years (100% leased)

Yield: IY: 7.95% AY: 7.5%

Noteworthy Transactions

Source: Google Images

Sunshine Coast Source: Google Images

Sunshine Plaza

Source: Google Images

Ground Floor First Floor

Bokarina Beach Development

Source: Dailymercury.com.au

Where Would I Spend $10M?

Source: Google Images, Herron Todd White

Source: Herron Todd White

Disclaimer

The information contained in this report is provided in good faith and

has been derived from sources believed to be reliable and accurate.

However, the report is not intended to be comprehensive or render

advice and neither Herron Todd White nor any persons involved in the

preparation of this report accepts any form of liability for its contents.

This report has copyright and cannot be reproduced without written

permission of Herron Todd White.