August 2017 Month in Review - Herron Todd White
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August 2017 Month in Review
Contents Feature – Investor interest 3 Commercial - Industrial 4 Residential 18 Rural 48 Market Indicators 56
Month in Review
August 2017
Investor interest
They’re an interesting lot, those property investors.
Your perception of a landlord might be old school - a There’s been a rise in the profile of another type Most important of all, our specialists have an opinion
rotund, cigar-smoking gent sitting atop a mound of of investor over the past decade – the non-local. on what might happen in their markets if demand
money that’s weighing down a horde of unfortunate The internet age has made it ever easier to do a from this influential mob were to slow – and in many
tenants, while he laughs maniacally at those whole mess of research without having to leave patches this may be the case. Given a tightening on
unfortunate souls unable to own their own home. your reclining easy chair. We are a big country with finance for these types of owners, it’s a reality that
a plethora of property options and buyers are no we may see less activity from this demographic in the
But dig into the numbers and you’ll find only
longer bound by state lines. future.
approximately 8% of the population invests in real
estate outside of their own home. Of that number, To take the example further afield, how about In the commercial realm, this month’s special subject
almost three quarters own just one investment. That overseas investors? Here’s an investor type who’s is industrial and it’s time to talk about rentals.
means less than 2% of the Australian population been firmly targeted in recent political dealings, and Let’s dig deep into how rents are tracking. We’re
owns more than one investment property. changes to legislation may see their interest shift in going to have our experts cover the full gamut of
the near future. the industrial rental ranges. Here, we outline what
Here’s another thought - investors come in all
various locations and standard of property are
shapes and sizes from blue-collar workers, to middle Whatever your opinion, investors are as diverse as
achieving in the rental sphere. There might even be a
class mums and dads, to young professionals of all the property options our country offers – and their
few projections on where rents are headed and how
persuasions. There’s no hard and fast rule about impact on our various markets, localities, property
you can get ready for the moves.
what an investor should look like. types and sectors can’t be ignored.
So, there you have it – a deep dive into the residential
Experience has taught us this too – most investors The fascinating thing is, what’s good for one spot,
investors psyche and how their moves might affect
aren’t in the market to try and lock everyone else isn’t necessarily a winner for another, so you need a
your local market, plus a look on industrial rentals
out of home ownership. Most are, admittedly, trying local’s view to get the real story.
and what the future holds.
to get ahead, but many would be happy to have
This month, we hone in on property investors and
just enough equity come retirement so they aren’t Please devour the wisdom within these pages but
their effect on our markets – at a nuanced level.
Feature
relying on the public purse to see them out. And don’t forget it’s most important you make time
We’ve asked our team to talk about their investor
while compulsory superannuation will help alleviate to give our team a tingle. They stand at the ready
sector. Our professionals discuss how investors tick,
our dependence on a government, most of us would to provide the right advice and ensure you aren’t
what they’re buying, what they’re selling and where
prefer to be sitting towards the pointy end of the caught out when the time comes to put your money
they’re heading next.
plane in our post-employment years. where your mouth is.
3
Commercial
Month in Review
August 2017
New South Wales
Overview $130 per square metre. Leases at this level of the Canberra
Rent levels are the bedrock which determine market are negotiated on a net basis, with tenants Canberra’s industrial market is concentrated in three
the success or failure of industrial investment, responsible for outgoing costs. We are noticing that main localities: Mitchell in the north; Hume in the
and having a handle on how they’re tracking is incentives have diminished with many large scale south; and Fyshwick centrally located near Canberra
imperative. operators happy to commit to long term leases of five airport. The Fyshwick market remains the most
to ten years plus options with minimal abatements popular of the three industrial areas in Canberra
This month, our team deep dive into industrial
depending on the location and improvement quality. providing a mix of small, medium and large industrial
rentals, dissecting the good from the bad and
and bulky goods use space, but activity in Mitchell
analysing movements so you can stay ahead of the In the sub 1,500 square metre bracket we note
continues to increase on the back of population
pack. rentals have also strengthened. At this level of the
growth in the Gungahlin district.
market, leases are generally negotiated on a gross
Sydney
basis with only a few agreements passing on the The ACT Government’s Four Year Indicative
Industrial markets have continued to show signs
costs of outgoings. This sector rarely features rentals Industrial Land Release Program is based on the
of strong growth across the whole of the Sydney
below $100 per square metre in metropolitan Sydney, current level of demand for industrial land. The
metropolitan area. Generally speaking, the
with the exception being low quality low clearance program is intended to achieve a number of
performance of the industrial market in Sydney’s
warehouses in less desirable locations. We have seen objectives, but in essence it is to increase the ACT
inner ring and particularly southern Sydney stems
the most uplift in this sector due to the affordability Government’s responsiveness to market changes
from an aggressive reduction in available stock
of most of these assets, typically at the sub by developing an inventory of land stock, where
due to the rezoning of land and conversion of
$500,000 price point. Given the population growth serviced industrial sites are available for immediate
existing stock, whilst the outer suburbs of Sydney
particularly in the north and south-west of Sydney, release. Land will be available in Hume and across
are benefiting from an unprecedented level of
many of the fringe industrial locales have seen a three new estates in Symonston (2016-17) 30,000
infrastructure investment and the on flow of owner
spike in demand from a sale and leasing perspective square metres, Fyshwick (2017-18), Hume and
occupiers and investors being priced out of industrial
as many of the existing occupiers have been pushed Symonston 55,000 square metres and Majura Valley,
precincts within close proximity of the Sydney CBD.
out of the main centres to make way for residential Hume, Symonston and Pialligo (2018-19) 42,000
Numerous local agents have reported a shortage of
redevelopment. square metres. A further 39,000 square metres will
Commercial
quality, well positioned industrial holdings.
be released in 2019-20. The program aims to release
Overall, the rental market is expected to continue to
Within the small to medium size bracket we note 166,000 square metres over the next four years.
grow due to a lack of supply together with a relatively
rentals appear to be very consistent, ranging from
healthy industrial outlook over the coming months. The land release of industrial sites has seen new
$100 to $120 per square metre per annum net
developments attract tenants from older established
plus GST and some of late have even hit as high as
sections of Fyshwick to new industrial sub division
6Month in Review
August 2017
locations. Currently rents for small units in Fyshwick Local agents report that tenant enquiry is at low have a broad range from $80 to $110 per square
range from $125 to $200 per square metre. Larger levels and those who can afford to purchase a metre gross.
premises over 1,000 square metres are letting for property are taking advantage of low interest rates
Most of the activity in the industrial market is being
$130 per square metre. and acquiring properties for long term investment.
driven by the Port of Port Kembla with logistics a
Hume rents are achieving rates of around $100 South East NSW rapidly developing sector particularly in new vehicle
per square metre for units averaging 200 to 300 The industrial property market has shown clear transportation. The tight supply and rising values
square metres and $120 per square metre for larger signs of improvement over the past two years with a and rents of industrial property in the Sydney
buildings of 1,000 square metres plus. slight increase in leasing transactions, demonstrating market is also impacting the local market, likewise
improved confidence after a prolonged period of the significant infrastructure investment in the
Mitchell properties are achieving rates of $220 per
static conditions post the GFC. south-west Sydney growth corridor most notably the
square metre for units between 100 and 300 square
proposed second airport at Badgerys Creek.
metres and $130 per square metre for over 1,000 In general, industrial rents are stable however local
square metres. agents are reporting a notable increase in enquiry Newcastle
levels, particularly for small to mid-sized efficient Location is a big factor in industrial rental growth
Industrial sales have been well located warehouse tenancies. Demand for larger around the Hunter Valley and Central Coast at
warehouse space is also increasing. Demand for older present. While we’re seeing some increase in coal
improving and are dominating the style large inefficient heavy industrial space remains mining services activity, this sector has been weak
market compared to rentals. relatively soft given the struggling manufacturing for around five years now and areas heavily reliant
and mining sectors. on mining sector activity such as Singleton and
Tenants incentives have consisted of rent free terms
Rutherford are still seeing downward pressure on
and contributions to fit out in order to move to newer Local agents are however finding that some tenants
rents across the board. Given the rental supply
locations with long term leases. (usually established businesses) prefer to purchase
and demand mismatch, rents are not expected to
rather than lease with low interest rates making
Tenant demand is low at present with tenants opting increase in the short term in these locations.
owner occupation more attractive. This is putting a
to purchase sites rather than rent due to low interest
cap on leasing activity. Mayfield West on the other hand is under stocked
Commercial
rates and good economic growth. Rents are stable
with industrial property. Local industrial leasing
and should remain so for the short term. Predicted Prime industrial rents typically range from $120 to
agents are reporting increased enquiry in this
increases in interest rates will impact the market in $150 per square metre gross. Low site coverage
locality. This is on the back of the significant
the long term and we would anticipate some rental properties with good usable handstand components
construction boom in the CBD, Mayfield West being
growth when the momentum swings back to tenant can achieve in the circa $170 to $200 per square
the closest established industrial estate to the CBD.
demand increasing and out performing sales. metre range. Second tier industrial rents tend to
7Month in Review
August 2017
Other major Hunter Valley industrial estates such as As for the remainder of the North Coast, Ballina has Incentives are common in the market with rent free
Beresfield and Thornton are indicating steady, albeit seen a slight increase in rents in industrial estates periods of one to two months, often written into
slow rental growth patterns. While stock listed for and decreased vacancies. The industrial markets in leases. Bulky Goods accommodation remains price
sale is scarce within the Beresfield estate at present, Casino, Alstonville and Goonellabah remain steady. sensitive with rental levels circa $140 to $180 per
the number of warehouses listed for lease is growing The South Lismore industrial estate has recently square metre, depending on size. We are aware of
in this ever increasing owner-occupied market sector. been affected by a major flood. There has been a 2016 leasing of circa 1,500 square metres which
anecdotal evidence that some industrial business included a 12 month rent free period over a ten year
Lismore
have packed up and moved up the hill to higher lease.
The Byron Bay industrial market has seen quite a
ground, however the majority have remained. It will
bit of action in the past six months. There has been
be some time before we can determine the effect the
high demand for industrial strata product with a lack
flood has had on the industrial market.
of available stock (both to purchase and lease). This
has resulted in increased values and premiums being Coffs Harbour
paid to secure a property. The demand is from both The rental market for smaller industrial sheds is
investors and owner-occupiers alike. The rental rates variable, demonstrating some market uncertainty,
have seen a sharp increase also for the 100 to 150 with a lower volume of recent lettings. Rental
square metre size industrial strata unit in the past six evidence displays a wide variance from $90 per
months from $150 to $180 per square metre to $230 square metre to $130 per square metre for modern
to $260 per square metre. tilt up small bays of 200 to 300 square metres in size
in prime locations.
The recent growth in industrial strata titled unit
product is, advised by some agents, due to reports The industrial rental market still remains price
Byron Shire Council have relaxed their regulations sensitive with a broad range of rents being achieved,
on illegal residential occupation of industrial units. which confirms the uncertainty in the market. There
Traditionally this has always been an affordable form remains a slight oversupply of smaller industrial
Commercial
of residential accommodation within Byron Bay, bays in the lower price bracket and valuations of
with people permanently occupying industrial strata poorly leased property will invariably be lower than
units on a residential basis (albeit illegal). Part of the those with vacant possession for this owner-occupier
industrial estate is zoned B7 Business Park, which dominated market.
permits residential occupation in conjunction with
business use.
8Month in Review
August 2017
Victoria
Melbourne Incentives mostly take the form of rent free months development occurring, especially in the south,
The Melbourne industrial market performed strongly at the beginning of the lease. Standard length leases south-east and west.
in the first half of 2017. With interest rates remaining (three to five years) generally receive one to three
Echuca
low and a relatively stable economy, new industrial months rent free, which usually covers the setting
Industrial rents have been relatively static for
developments are continuing to come onto the up period of the property, whilst longer leases (five
some time, with the market generally capped at
market, especially in growth corridors where there is plus years) are seeing three to five months rent free.
the cost of construction for owner builders in the
an abundance of vacant land prime for development, This usually ends up being about 25% to 35% of the
amortized over the life of the asset in conjunction
including suburbs such as Clyde, Pakenham and commencing rental amount.
with owner-occupiers looking to take advantage of
Dandenong South in the south-east, Carrum Downs
In the south-east, in a well-regarded industrial area self managed super funds. Consequently there have
in the south, Truganina and Derrimut in the west and
such as Dandenong South, a 2,500 square metre, been limited gains in industry locally and this has also
Epping in the north.
modern office/warehouse could expect to reach been exacerbated in some regards by challenging
Industrial rents have remained relatively stable over between $70 and $90 per square metre per annum manufacturing conditions. Consequently there have
the past 12 months with the exception of the northern net plus GST, with larger properties expecting been limited gains in industry locally and this has also
industrial market, which includes Campbellfield, less and smaller properties expecting more. Older been exacerbated in some regards by challenging
Coolaroo, Somerton and Broadmeadows. This area properties and ones in inferior locales would reach manufacturing conditions.
has felt the impact of losing the Ford Motor Company between $50 and $70 per square metre per annum.
manufacturing plant in Campbellfield last October.
In the outer east in Kilsyth, we’re seeing rates of $70
to $80 per square metre per annum net plus GST
Incentives are not as prevalent for good quality large industrial properties (2,000
in the industrial sector as they square metres plus), with brand new warehouses
smaller than 500 square metres reaching up to $130
may be in other markets, however per square metre per annum net plus GST.
Commercial
are becoming more common, We expect tenant demand to remain relatively strong
especially within new industrial over the coming 12 months, however remain cautious
of oversupply given the large amount of industrial
estates.
9Month in Review
August 2017
South Australia
Adelaide When the subdued rental demand is coupled with project, comprising 12 submarines at a spend of circa
The industrial rental market is generally subdued weak investor sentiment and a low interest rate $50 billion. These projects are expected to provide
as the South Australian economy faces continued environment, it is not surprising that those left active over 2,000 jobs.
challenges. in the market are equally attracted to buy as oppose
In addition, the South Australian Government
to rent.
The market in the outer north, specifically the areas has significantly increased its expenditure on
surrounding Elizabeth South have experienced The rental market for industrial property has infrastructural projects. In 2015 to 2016 the budget
weak demand over the past 18 months due to the previously been more simplistic than other markets was $1.8 billion which has increased to $2.2 billion by
closure of Holden’s production plant and the loss of such as office space or retail where face rents and 2017 to 2018.
approximately 1,250 on-site jobs. effective rents can vary significantly. The increasing
The projects are:
use of incentives has seen the industrial market
As the 2017 departure of Holden approaches,
become more complex and less predictable. • Darlington Upgrade
there are noticeable vacancies arising throughout
• Anzac Highway to Darlington
industrial northern areas and properties are Also, the increase in outgoings has placed additional
• River Torrens to Anzac Highway
experiencing extended marketing periods given the downward pressure on net rents. It was recently
• Regency Park to Torrens Road
uncertainty surrounding the local industrial market. revealed that Adelaide has the highest power
• South Road Expressway
prices in the world, which has a particular impact
Unfortunately, GM Holden’s departure is only • Northern Connector
on industrial businesses. Although the recent
part of the bigger picture but has typified the
announcement of a raft of spending by the South The combined effect of the Defence contracts and
contraction of manufacturing in South Australia. This
Australian Government, including a 100MW battery the infrastructure expenditure is going someway to
contraction has led to an oversupply of industrial
in Jamestown, may soften the consumer electricity soften the blow, however the fall-out to the South
space throughout the market and placed downward
costs. Australian economy has been harsh.
pressure on rents.
A positive has been the securing of Defence
There is now an evident difference between renewals
construction contracts. After the completion of the
and new leases with incentives becoming more
Air Warfare Destroyer (AWD) construction contract,
Commercial
common, as has the need to reconfigure larger
the Future Frigates programme will commence in
spaces for multiple occupants.
2020 with an estimated spend of circa $35 billion.
Following this in 2022 is the Future Submarine
10Month in Review
August 2017
Queensland
Brisbane Demand in locations such as Acacia Ridge, Brendale, averages over the course of the next few years.
The Brisbane industrial market has been generally Northgate, Salisbury and Sumner is presently being
Elsewhere, suburbs such as Caboolture, Banyo,
buoyant throughout the first half of 2017 with leasing driven by owner-occupiers and we have seen capital
Hendra and Northgate are experiencing relatively
and sales activity levels within the TradeCoast values increasing within these established precincts
low levels of vacancy, with prime grade buildings and
continuing to outstrip other industrial corridors. for quality assets.
properties with exposure to motorways or arterials in
There have been record land value rates set in this
In regard to the rental market, the flight to quality high demand.
precinct over the past six months with limited supply
continues to support prime grade rents, particularly
and pent up demand driving land value rates to More broadly, many agents are reporting weak
for those locations within close proximity of major
exceed $600 per square metre of site area in some rental market conditions for buildings with 2,000
transport routes and Brisbane’s ports. With the
instances, particularly in Eagle Farm. Whilst industrial to 5,000 square metres of GLA. There has been
exception of the TradeCoast and pockets of industrial
developments remain unfeasible for the majority anecdotal evidence emerging of declining face rents
properties on the north and south sides, rental rates
of projects (due primarily to high underlying land for secondary buildings of this size and an upward
have remained stagnant throughout the greater
values, rental stagnation and rising construction trajectory in incentives - around 10% plus over the
Brisbane region. This is largely a function of weak
costs), the land market is instead being driven by initial term of a lease is becoming more and more
performance across a number of key economic
owner-occupiers seeking to purchase sites in prime common.
indicators such as inflation and growth in wages
locations with the intention of constructing purpose
and GDP. There has been some uplift in activity
built facilities for their own business purposes.
led mostly by large scale tenants (7,000 to 10,000
Looking forward, future rental
The TradeCoast has been the most sought after square metres) who took advantage of higher movement will depend on
precinct historically given its proximity to ports and incentives particularly in the northern and southern
the CBD, and is set to remain this way with several precincts as developers aimed to secure pre-
economic conditions, business
major infrastructure projects, including the doubling commitments for their developments. confidence and the future supply
of the Brisbane airport runway and the upgrade of
Kingsford Smith Drive ensuring continued growth in
In the case of Seventeen Mile Rocks, rents were of both vacant land and built
undermined 18 months ago by an unusually large
the area over the medium to long term. product.
Commercial
supply of new stock (Metrowest) coming onto the
Within the sub $5 million price range, modern stock market simultaneously in circa 2015/16. This caused Finally, leaseback agreements where the vendor sells
with strong leasing covenants continues to receive net face rents to fall $20 to $40 per square metre the property with a three to ten year commitment in
strong interest from private investors and syndicates. and from discussions with local agents, this supply place to lease the premises back from the purchaser
We have seen sub 7% yields achieved on these has finally been taken up by the market and we are common in the current market. This is primarily
transactions, however these have been in isolation. should expect to see rents return to their historical the result of businesses seeking to free up capital
11Month in Review
August 2017
or rebalance the books. The current search for yield industry. The number of vacancies has increased owner-occupiers driven by the low interest rate
amongst investors is encouraging yield compression over the past twelve months which could result in borrowings and the flat cash rate. The trend of
across the industrial landscape during a period of the tightening of rentals or the introduction of lease renters turning into owner-occupiers is mainly
sustained low interest rates. This, together with a incentives. happening in the traditional industrial precincts in
weak rental market, is making these agreements the central and southern regions which are mostly
Industrial rental rates in Toowoomba can vary from
an attractive proposition for owners of prime grade composed of small to medium sized properties that
$75 to $140 per square metre gross for warehouses
stock as a strong return on investment can be were developed to cater for the demands of local
and $120 to $200 per square metre gross for the
achieved through the sale, while simultaneously companies. The larger factories are concentrated in
office components. These rates will vary depending
locking in an affordable rent for the medium to long the Yatala Enterprise Area (YEA) in northern Gold
on factors such as size, quality of building and
term. Coast which encompasses the suburbs of Ormeau,
inclusion of overhead gantry cranes.
Yatala and Stapylton. Not surprisingly, the leasing
The inclusion of additional hardstand yard area could market is more active in the north than in the south.
South East Queensland also affect a property’s achievable rental. A standard Amongst the national companies that have set up
Property Overview Breakfast industrial property in Toowoomba will generally roots in the YEA in recent years are Caterpillar, O-I
have a site coverage of 25% to 30% with premiums Glass, Jeld-Wen and Markwell Cold Storage whilst
Register your interest here often achieved if the site coverage falls below this Aldi, Visy Industries, Harvey Norman, Stratco and
Guest speaker Mr Alan Kohler rate. Rentals of between $8 and $20 can be achieved Beulieu Carpets have stayed as prominent owners
Thursday 16 November 2017 for hardstand yards with the variances due to size, and renters.
location and type of hardstand (gravel, bitumen,
Market rents for large format industrial factories
Tickets on sale soon concrete etc).
and warehouses have stagnated despite the growing
For further information, contact Catherine Wilson
The other major factor that will affect rental rates is number of national companies setting up their
catherine.wilson@htw.com.au or 07 3353 7500
location. The western suburbs of Wilsonton, Glenvale branches in this region. As far back as 2010, active
and Torrington have always been considered more leasing agents for the area have been marketing
popular industrial precincts with suburbs such as vacant industrial space at the rental rate of $100 to
Commercial
Toowoomba
North Toowoomba, Rockville, Harlaxton and Drayton $110 per square metre per annum plus outgoings and
Industrial rentals in Toowoomba have been relatively
generally considered secondary locations. the current going rates are still the same. However
static with only modest increases over the past
the outgoings such as council rates, land tax and
two to three years. Leasing demand however has Gold Coast
cost of repairs and maintenance have been rising.
declined recently which coincides with the decrease The main thrust of the Gold Coast industrial
This has resulted in gross rental rates appearing
in activity within the Surat Basin coal seam gas market in the past few years has come from
12Month in Review
August 2017
to increase to the level of $130 to $160 per square sporadic and rental growth has been rather slow, Sunshine Coast
metre per annum. Due to keen competition, there if not stagnant. For this reason, it is still a common Over the past six to 12 months we have seen rental
have been some properties, particularly those more sight to see roadside for lease signboards in the rates continue to firm in the industrial market in
than 3,000 square metres in lettable area, being industrial estates. established estates across the Sunshine Coast.
leased at gross rates at this level, thus the actual net Vacancy levels, particularly for sub 300 square
There are however, pockets where some evidence
rates would be in the order of $90 to $100 per square metre spaces in areas such as Kunda Park, Warana
of rental increase has been seen due to diminished
metre per annum. Of course, the older sheds of and Caloundra West are limited, which has led to an
supply of serviced industrial sites coupled with a
sheet metal cladding would only command net rates increase in rental levels for these locations. Typically,
rise in land values and cost of construction. These
of $70 to $80 per square metre per annum. The rentals for these types of property range from $120
pockets are in Arundel, Southport, Helensvale,
general gross rates for small industrial units in this to $180 per square metre gross.
Coomera and certain parts of Burleigh Heads where
region have also levelled at $120 to $140 per square
rental rates at $140 to $180 per square metre per Within secondary industrial locations we have
metre per annum.
annum gross are common. However, these rates seen a reduction in vacancy levels which has led
Further to the north of the YEA, the less significant appear to apply to modern units and freestanding to some rental growth, however it’s still common
established industrial estates of Beenleigh, Bethania industrial buildings whilst older style premises still for incentives to be offered to attract prospective
and Logan Village at the fringe of Brisbane’s south prevalent today appear to be less affected, with the tenants, which has led to some inconstancy with
are experiencing very low leasing demand and general level mostly falling at the old rates of $120 rental levels. A summary of the rental levels for the
consequently, rental rates are staying at a low level. to $160 per square metre. With outgoings currently sub 300 square metre market is as follows:
There are hardly any large format industrial factories falling between $30 and $50 per square metre of
available for lease due to a lack of demand and even lettable floor area, the net rates have remained at Location Rental Range (per sqm gross)
small industrial units are only achieving rental levels around $90 to $110 per square metre.
Kunda Park $120 to $145
of $70 to $110 per square metre per annum gross.
There are early talks of an imminent interest rate
Warana $130 to $160
The same owner-occupier dominated market rise, the only uncertainty being when. Any rise in the
scenario is occurring in the central and southern lending rates could be a game changer. Landlords Caloundra West $130 to $180
Commercial
industrial regions, although the market levels are at would be looking to pass on any increase in cost to
Bells Creek $120 to $140
higher levels of $110 to $150 per square metre per tenants, however, is the market demand capable of
annum gross. Due to a limited supply of industrial absorbing the increase? Property is a very inelastic Coolum Beach $100 to $130
sites, there has been very few new stock added to commodity and it will take many months for the
Noosaville $130 to $180
the market, which translates into limited new stock market to adjust to any change in the cash rate and
available for lease. However due to a preference to any projections of rental increase or yield increase in
own rather than to lease, leasing demand has been the short term would be rather presumptuous at this
time.
13Month in Review
August 2017
These primary industrial areas still note vacancy Incentives are common as part of these negotiations, achievable rental rate seems to be the local versus
in the 300 square metre to 1,500 square metre generally taking the form of rent free periods or national tenancies with national tenants tending to be
sector, though have also begun to drop over the contributions to tenant fit out. able to afford slightly higher rates per square metre.
past 12 months, which has led to some rental growth We are aware of four recent leases of large industrial
There has been some activity on the industrial sales
dependant on specific property attributes. We note properties in Parkhurst of between 1,685 and 2,300
front in the past 12 months, with two significant sales
that rental rates for good quality larger industrial square metres, which have been leased at between
to local owner-occupiers, both at $1.9 million. These
properties vary from $110 to $140 per square metre $90 and $138 per square metre gross. We consider
are large industrial complexes both in Callemondah
gross for warehouse, $140 to $180 per square metre these rentals provide the best recent evidence of
Drive. There is also the notable sale of the RCR
gross for office components and $15 to $35 per market rentals for large industrial premises.
Tomlinson workshop in Ganley Street that sold for
square metre for hardstand components.
$6.2 million, reflecting an analysed market yield of There appears to be an increasing tendency for
Gladstone about 9.75%. There was close to ten years remaining shorter lease terms, with potential uncertainty for
The industrial rental market in Gladstone has on the lease term. the medium term direction of rental rates. Owner-
continued at a relatively slow pace with limited occupiers continue to remain active in the market,
Rockhampton
activity. New rental negotiations in the past 12 to 24 with most activity in the $750,000 to $1.5 million
The Rockhampton market benefits from a fairly
months have shown reductions in excess of 50% price bracket.
diverse economy which has somewhat cushioned
from peak market conditions. It appears that these
the impact that the downturn in the resources A 1,122 square metre warehouse recently sold
rentals however have perhaps started to flatten
sector has had on the industrial lease market. in Alexandra Street for $1.3 million to an owner-
out with no notable further reductions in recent
There has however been a slight softening of the occupier, reflecting $1,159 per square metre of
months. Rental evidence shows rentals generally
industrial market in Rockhampton in the past 12 to 18 lettable area. We anticipate that owner-occupier
falling between $90 and $150 per square metre
months (mostly for larger industrial premises) and activity will continue in the medium term as a result
gross, depending on a variety of factors, particularly
the current supply of leased industrial properties of low interest rates and current market conditions.
condition and nature of improvements, site coverage
exceeds demand.
and crane availability. In terms of rental variance Mackay
and location, higher rentals are generally achieved Rates per square metre for industrial leases tend to The industrial rental market in Mackay has
Commercial
in the industrial precincts around Callemondah. fall within the $100 to $140 per square metre range, experienced a significant downward correction in
Lower rentals and generally higher vacancies exist but it is not uncommon for rentals to be negotiated rental levels as a result of the coal mining downturn.
in secondary industrial locations around South Trees outside of this range. Properties at the upper end of Based on a fairly limited number of reported new
and the South Gladstone area. Given the high level this range are generally located within established leases, we believe that rents are down by 30% to
of supply relative to demand, tenants continue to industrial precincts and provide quality workshop 40% from the peak in 2011/12. The market features
have bargaining power in new lease negotiations. and office areas. Another contributing factor in the high levels of vacancy and weak levels of demand.
14Month in Review
August 2017
In some cases, new lease rentals are subject to $1 million range and largely catering to intending Cairns
confidentiality clauses and cannot be reported. This owner-occupiers. There are occasional high The industrial sector in Cairns is relatively small with
is a new characteristic which has probably occurred end syndication or trust purchases, but only for areas close to the CBD showing stronger demand.
to suppress the full extent of the market correction properties with strong lease profiles. Though we now perceive the industrial market to
and to protect the market from a more severe be entering a recovery phase, industrial property
Industrial rents have been on a declining trend and
outcome. development remains slow.
appear to have reached a level that is being accepted
Rental rates are yet to consolidate at new lower by the market. As a result of softening rents, Prices per square metre for established strata titled
levels and new rentals have been negotiated within a incentives also appear to have settled to reflect rent industrial units have been steady at around the
fairly broad and inconsistent range. A recent example free periods of around three months. $1,250 to $1,500 mark for some time. Commercial
is a modern warehouse at Caterpillar Drive, Paget of agents advise limited availability of good quality
Broadly speaking, a large portion of mainstream
over 1,000 square metres in lettable area which was stand alone warehouse stock with slow to reasonable
industrial property falls within the $90 to $110 per
leased at $81 per square metre per annum net which demand for this type of premises. Strata titled
square metre rental range. Within the lower end of
is considered reflective of the market. industrial warehouses are also limited in numbers to
this range is typically smaller older light industrial
both sell and lease with similar limited demand.
Rental incentives in the form of rent free periods or properties in Garbutt with small office components.
lower rent in the first lease year were fairly common Larger better quality mainstream industrial Industrial property rents range from $100 to $150
throughout 2016. This has not been as common in properties in Garbutt and Bohle generally fall within per square metre per annum gross depending on
2017. the mid to higher end range depending on the office size, location and quality. A lack of new stock should
size component and hardstand areas. Industrial see availability tighten as we move through 2017.
The market has been most active at total annual
property exhibiting large office components and
rental ranges of $30,000 to $65,000 per annum There is good investor demand for leased industrial
extensive hardstand areas can reflect rents up to
net. The highest recent rental was struck at properties across all price ranges of the market,
above $140 per square metre.
approximately $210,000 per annum net in August from small stratas through to large showrooms.
2016. At the peak of the market, total annual rents Overall rents are flat with the market continuing However there is very limited quality investment
for large premises exceeded this level. The market is to exhibit a balanced to oversupply of property stock available for purchase. This will tend to support
Commercial
approaching its cyclical trough. available relative to current demand. This is likely to values for well leased properties over the short
see downward pressure remain on rental rates until to medium term. The market has been gradually
Townsville
such time as the rental vacancy situation improves. consolidating over the past 12 to 18 months and the
The industrial market remains flat with current
outlook is for stable conditions as we move through
market activity being largely confined to affordable
2017. A recovery in the vacant industrial land market
properties that tick all the right boxes in the sub
in Cairns will continue to depend on more widespread
recovery in the local economy.
15Month in Review
August 2017
Northern Territory
Darwin (zoned LI or GI), compared to 79 in the corresponding
A short drive through any of Darwin’s industrial period in 2014. This is a 40% reduction in sales
areas, such as Winnellie or Berrimah, will confirm the volume which is fairly consistent with other property
prevalence of for lease and for sale signs scattered at types in the Greater Darwin area.
regular intervals across all property types.
Demand for industrial property in Darwin is closely
In such an environment, tenants have the upper linked to domestic demand for goods and services.
hand when negotiating new rentals or renewing their Therefore, until we see prolonged population growth
existing arrangements. Many of these tenants are here, it is unlikely we will see a sustained recovery in
experiencing difficult trading conditions anyway and the industrial property market
renegotiation of rents can be a matter of economic
survival, rather than just a cost cutting exercise.
Inevitably, this is leading to downward pressure on
rents and sometimes an increase in rental incentives
such as rent free periods. In the current market,
it is not unheard of for rental reductions of 20%
to be negotiated in the industrial property market,
especially for older style stock where the rent was
set close to the 2014 peak.
Sale transactions have also slowed. For this calendar
year to June, there have been a total of 47 sales of
industrial properties across Darwin and Palmerston
Commercial
16Month in Review
August 2017
Western Australia
Perth that enquiries for larger space above 10,000 square appears to be more positive. There are a number of
In these times when demand is low as a result of the metres is low, the requirements for space below quiet murmurs with regard to resource projects and
maligned resources sector, the flight to quality is 10,000 square metres has increased. the general consensus in the market is that we have
prevalent in the industrial eastern corridors of Perth reached the bottom.
Prime industrial rents at present typically range
such as Kewdale, Welshpool, Hazelmere, Forrestfield
from $70 to $100 per square metre per annum net in On average these requirements have been for
and to some extent Maddington. The dynamic shift
the north, between $70 and $100 per square metre between 7,000 and 8,000 square metre buildings
in the state’s economy as a result of the mining
per annum net in the core, between $60 and $90 on large sites, which in some cases have offered the
downturn creates a number of opportunities for
per square metre per annum net in the south and potential for expansion at a later date. It is likely this
occupiers in this core industrial circle which has
between $70 and $100 per square metre per annum trend will continue in the short to medium term.
historically been tightly held.
net in the east.
Challenges do persist for secondary and older style
Although some companies Secondary industrial rents at present are typically industrial space and heavy discounts to previously
15% to 20% below prime industrial rents. achieved rents are required to at least attract any
have been rationalising space enquiry.
Leasing enquiry is expected to remain positive
requirements, other businesses in the short term, mostly for opportunities in the
have used this as an opportunity to traditional, more established precincts, with a steady
increase in transactional activity likely as a result.
upgrade or relocate to alternative, It is anticipated that this demand will be mostly in
often larger industrial space the sub 10,000 square metre segment. Although
major pre-commitment leasing demand (greater than
that better suits their long-term 10,000 square metres) has appeared to soften in
business needs. comparison to previous years, there are a number of
active requirements in the market which may lead to
As tenants have relocated this has also created
an increase in this activity in the medium term.
Commercial
backfill opportunity in properties which have
previously been tightly held for many years. Agents In recent months there has been an increase in pre-
advise of an increase in tenant enquiry, mostly for commitment activity in the east precinct, including
core or east located properties. Whilst they do admit Jandakot airport and Maddington. The market
17Residential
Month in Review
August 2017
Overview affordability a recurring media topic, the federal Another example of an investor hot spot is the area
Investors are sometimes a hard-put-upon group, but government has introduced initiatives to help the known as Kings Cross. Kings Cross is one of Sydney’s
there’s no denying they have a huge effect on our first home buyer and limit the overall buying power highest density precincts and covers the suburbs
property markets. of the investor. Whilst it is still too early to track of Potts Point, Elizabeth Bay and Rushcutters Bay.
the success of these initiatives introduced on 1 July It is well established, being within two kilometres of
This month, our offices discuss how investors are
2017, the tightening of lending ratios and terms for the CBD, and has a train station, light commercial
operating in their markets, and what an investor
investors has been slowly occurring since early this buildings and retail spaces. Recent changes to laws
slowdown might mean in their service area.
year and our queries with both agents and brokers governing the opening hours of entertainment
Sydney are telling us that the impact is starting to take establishments in the area has allowed the precinct
It has been well documented that the Sydney market effect. Whether the restrictions will have a long term to begin to shed its reputation as a somewhat unsafe
has gone from strength to strength over the past effect on the market is currently unknown. nightlife district allowing it to become increasingly
number of years due primarily to a supply versus popular with investors. Investors targeting this
Historically investors have been attracted to areas
demand imbalance as more and more players look area in the past have been seeking the strong
that offer strong rental demand and the possibility
to enter the market and maximise strong capital rental returns offered by the many small studio and
for solid future capital growth. Traditionally these
appreciation opportunities. With record low cash 1-bedroom units. It seems to be the trend however
areas tend to be located within close commuting
rates, strong employment opportunities and a wide that many small studio units have lower levels of
distance of the CBD and around universities,
range of property types, the Sydney market has capital growth than standard 2-bedroom units for
hospitals and areas with good infrastructure and
property at a price point to suit many. example which we assume is also due to the broader
public transport options. To meet this demand, there
market appeal.
Sydney has long been a favourite for investors, has been a significant change in the town planning
whether local, interstate or overseas. Corelogic data requirements which has been driven by the state In western Sydney the new apartment market
from April 2017 indicates that 55.3% of mortgage government. Sydney is fast becoming a vertical city, continues in various degrees throughout all major
demand that month in Sydney was from investors. If with a change in buyer expectations and a surge regional zones with the Liverpool/Fairfield areas as
one in two mortgages is being driven by the investor in demand for apartment living. Modern, medium well as Parramatta and The Hills district in particular
pool, it stands to reason that this important segment to high density zones are becoming increasingly seeing substantial development. The Norwest
Residential
has had much influence on the overall position of the common with many notable precincts springing up Railway line currently under construction from Rouse
market. across the city including Green Square at Zetland, Hill to Epping has resulted in a significant increase in
Harold Park at Forest Lodge, Discovery Point at unit developments approved or under construction
Sub $1 million dollars is still a driver for the broad
Wolli Creek, Central Park in Chippendale as well as in what is typically considered the burbs, with
market and in this segment the investor is really
developing precincts in Erskineville and Camperdown unprecedented construction occurring particularly
competing against the first home buyer. With housing
(to name a few). in Kellyville. This list in western Sydney is continually
21Month in Review
August 2017
growing with a record number of unit approvals This not only adds value to their existing investment begins to plateau and banks continue to tighten
passed over recent years. What these areas have but can also increase yield substantially with a lending criteria and increase interest rates.
in common is that they all appear to have a high dual income when configured correctly. The areas
The best advice we could offer to future investors
investor contingent although the future of some that appear to have a high proportion of granny
is to do your research. Important aspects
will depend heavily on an unknown tenant pool with flats are generally the outer rings of western
include good access to services and low levels of
oversupply perhaps becoming a future issue. Sydney particularly within the LGAs of Penrith and
unemployment. Check your suburb profile, speak
Campbelltown. The comparatively lower initial entry
With Liverpool being the CBD of the south- to local rental agents about demand, check if any
point for the main dwelling, larger sized allotments
west region, it has seen a large number of new major changes are on the cards such as future large
suitable for granny flats and consistent rental
developments completed in recent years. An example scale infrastructure projects, re-zoning etc. Is it an
demand in the area make these locations popular.
of this includes the 30-level Sky Haus development area tipped for gentrification? Check the history
Currently rental yields are approximately 2.9% within
in Liverpool (420 Macquarie Street) which includes of the developer – have their other developments
greater Sydney (as per CoreLogic Housing Market
dual-key units selling on high yields of over 6% in proven to be popular with second buyers if you
and Economic Update July 2017), however our own
some cases. Investors is this area commonly seek must sell quickly? Whilst investments are generally
market knowledge indicates that dual occupancy
above average returns however it comes with limited not as emotionally driven as the purchase of an
properties (main dwelling and granny flats) in these
capital growth in comparison to superior locations individual’s home, be conscious that if you want a
outer ring suburbs have been selling at yields of
closer to Sydney or the Parramatta CBD. Many see tenant to live there, it has to be appealing especially
approximately 5% in recent times. The granny flat
it as an area of future potential however given its if the tenant pool has plenty of options. Sunlight,
trend has really gained momentum over the past five
proximity to Parramatta, the M5 and M7 motorways privacy and aspect in large scale unit developments
years with owners initially achieving higher returns
and of course the future second airport at Badgerys could be crucial to getting a long term tenant which
but due to strong capital growth for the parent parcel
Creek. A good entry point for investors in the is a benefit to maximise your overall investment
and relatively stable rentals, yields in these areas
Liverpool/Fairfield unit market can usually be found strategy. Be thorough with your research and focus
have compressed.
between $400,000 and $600,000. on a strong rental yield with a view to a longer term
While the positive cash flow provided by a strong investment as the days of annual capital growth
Another popular option for yield is always a benefit, in the past year returns from exceeding 15% are no longer expected.
Residential
capital gains have been significantly more profitable
investors in western Sydney is for investors who have the option of using the growth
Canberra
Recent changes to lending and legislation, aimed
adding a granny flat to the rear of in equity to fund an additional investment property.
at enabling first home buyers to enter the market,
In the future however, it may be wiser for investors
the allotment. to seek out strong rental returns as capital growth
has had an effect on property investors looking
to expand their portfolios. These measures were
22Month in Review
August 2017
introduced in an effort to allow first home buyers to Rental yields in detached housing have remained tenancies. The last investor type is a more prominent
be more competitive in a heated market. As a result, steady but like other capital cities, capital growth individual or group interested in cash flow and their
property investors looking for an asset with good has been very strong. An option for investors in the portfolio will comprise larger unit blocks held in one
yield and growth will have to do their research and ACT may be to purchase a vacant block through line. They can be either local, from a capital city such
be willing to go the extra mile to secure a profitable the Mr Fluffy Asbestos Removal Scheme. There as Sydney or from overseas and the price points for
investment. are several hundred blocks being introduced to the their investments are often in the $1 million to $3
market most of which are in sought after established million range.
Unlike other states, the ACT has not introduced
areas. Land banking one of these blocks and either
a scheme which cuts stamp duty for first home The investor market has been particularly active in
selling or developing later may be a profitable option
buyers. There are some incentives available via the the past three to four years throughout the Illawarra.
providing investors are able to cover the initial costs.
government and private developers however nothing Changes to self managed superannuation fund
However, developers should be wary of the changes
similar to those in New Sourth Wales and Victoria. regulations and historically low interest rates have
to the Lease Variation Charge which took effect on
been the driving force behind this along with rising
With the increased supply of apartments coming the 1st of July 2017. These changes have significantly
property values allowing mum and dad investors
onto the market over the next year, the ACT has increased the fee required to build multiple units on
to use the equity in their owner occupied property
seen relatively slow growth for this style of property residential blocks.
to invest elsewhere. Residential rental prices have
with some properties loosing value. However, rental
Illawarra not been increasing at the same proportion as
demand for apartments has remained strong despite
We see a few different investor types who look to property values and therefore yields have dropped
the increase of supply. If property investors are
invest in residential property. One is the mum and during this period. Some examples of recent larger
chasing yields and not capital growth, purchasing
dad style investor who is either using spare cash or style unit block sales in the Illawarra and their
a new apartment may be a good option. This is
their self-managed superannuation fund to invest gross yields are as follows: ten x 2-bedroom villas
particularly relevant for apartments in the CBD
in a single residential property. This can either be in Bomaderry recently exchanged for $2.35 million
and district centres such as Woden, Tuggeranong,
a dwelling or a unit and their price point can be and at an estimated market rental of $275 per week
Belconnen and Gungahlin. Apartments in proximity
anywhere from $350,000 through to $1 million per villa, the sale price shows a gross yield of 6.1%.
to University of Canberra and Australian National
depending on the amount they have to invest. In Corrimal, a complex comprising five x 3-bedroom
Residential
University also offer good investment opportunities.
Another type is a local investor who has multiple townhouses recently exchanged for $2.27 million
It should be noted that new apartments in Molonglo
properties generating income for them. Most of their and this shows a gross yield of 4.9% at the assessed
Valley, Gungahlin and Tuggeranong may experience
properties are lower end units or dwellings (typically weekly rental of $2,150.
low to no capital growth over the next few years due
purchased for sub $750,000) and they can often
to increasing supply. We understand that investors are significant
include properties converted to allow for multiple
players in the residential property market and
23Month in Review
August 2017
are contributing to rising property prices and the The hamlets of Colo Vale and Hilltop have seen an This may not be the case in the Lower Hunter
recent boom in construction of unit complexes in increase in medium term investor activity, with those however; in fact it will probably buck the trend.
Wollongong. As new units continue to be released to locations being close to the freeway and producing Newcastle is still an enticing prospect for investors
the Wollongong market (along with more on campus strong rental returns. due its close proximity to Sydney, its affordability
accommodation at Wollongong University) there is a compared to the capital cities and an excellent rental
Likewise, across the Southern Tablelands there
real threat of an over supply and heightened risk of market with a current vacancy rate of just 2.3%.
has been a modest amount of speculative investor
vacancy rates rising. As always we would recommend
activity in the new subdivisions close in to Goulburn With Newcastle being a university city there is
that investors complete proper due diligence prior
as well as some of the northern fringe locations of a high investor involvement in good rental yield
to purchasing and understand the rental history of
the region such as Marulan, where investors have suburbs close to the university such as Jesmond and
their potential purchase along with any surrounding
purchased blocks, constructed dwellings and on sold. Wallsend. However investors are also looking at inner
development or infrastructure changes that may
city and coastal suburbs such as Cooks Hill, Wickham
impact. Newcastle
and Adamstown for higher capital gains.
Owning your own home is the great Australian
Southern Highlands/Tablelands
dream, but what about owning two homes, three
With the continuing ripple effect from the Sydney
homes or even more? Investing in real estate has
The Newcastle CBD is undergoing
market buoying the local market, there has been
a noticeable increase in the speculative investor
always been a popular way of earning an extra a makeover and with the
income in Australia and with over 50% of residential
type of individual. This is most evident in the recent
sales in the Lower Hunter in the past financial year
construction of not only a new
release of Retford Park subdivision close to the
township of Bowral which has seen a flurry of vacant
being to investors, this region is certainly a hot spot university campus but also
for property investment.
land lots coming to market. Notably these pre sales numerous apartments, the area is
were effected in quarter 4 of 2015 and quarter 1 The number of investment home loans has
of 2016, with the market having strengthened a dropped nationally over the past year and this
sure to see an influx of investment
minimum 10% since this period. Some of these trend is predicted to continue due to the regulatory in the near future.
purchasers are of the mindset to take the gain clampdowns that have been imposed. These
Residential
Strong rental returns, larger blocks, competitive
now rather than proceed with construction of a regulations and the government’s efforts to cool
capital gains and the ability to find low maintenance
dwelling and bring it to market, albeit that is the the housing market especially in major cities
2- to 3-bedroom properties for under $500,000
strategy of some investors in areas such as Renwick, would suggest that investment should slow down
means the region offers plenty of good investment
(Mittagong) Darraby (Moss Vale), continuing to ride nationwide.
opportunities for those who can’t afford the larger
the wave from the Sydney market.
capital cities, especially Sydney.
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