Soaring commercial real estate prices in Sydney and Melbourne are driving savvy investors toward counter cyclical markets such as Brisbane, in the hunt for value investments.
A December 2016 Capital Markets report from prominent real estate brokers Colliers International has highlighted signs of increasing demand in cities considered by many to be nearing the bottom of the cycle in terms of real estate investment, as investors struggle to find value in core capital markets Sydney and Melbourne.
The report notes that near-unprecedented rental growth across the two most prominent Australian destinations for foreign investment in commercial real estate has spurred on cap rate compression to below 6% in A grade markets. This has resulted in a number of transactions on the back of very short recycling periods, as firms look to reap the benefits of a hot market.
For investors looking to enter the market, Sydney and Melbourne appear close to the peak of the cycle. Upward pressure on capital values has driven prices on a square-metre basis to historic highs. Value investors are therefore turning their attention to Brisbane, and to a lesser extent Perth, in a bid to enter the market at the bottom of the cycle.
Certainly, vacancy rates and weak tenant demand have created difficulties for those looking to invest in these cities over the past few years, as incentives ballooned and rental growth remained stagnant. However, as the Colliers report notes, above average net absorption and the prospect of forecast withdrawals placing limits on supply in Brisbane over 2017 are increasing the appeal for investors willing to place their faith in demand reversion over the short to medium term.
Indeed, a 100-basis point yield spread between Brisbane and Sydney/Melbourne, significantly above historical levels, further indicates the potential to find value in the Queensland capital.
For Aspire Strategy, a boutique commercial real estate investment house, this presents a potential opportunity. “We pride ourselves on our diligence in attention to market conditions,” says Principal and Founder Mr. Peter Hurley. “Just because Sydney has historically been considered a safe bet in terms of capital appreciation does not mean that capital growth will always occur. We see an opportunity to capture significant upside in markets such as Brisbane as stagnant markets pick up growth over the coming years, and it’s our responsibility to investors to look into that.”
Contact Aspire Strategy at www.aspirestrategy.com.au to learn how Aspire can help you.