THE commercial, industrial, retail and residential property markets in Sydney, Brisbane and Melbourne will make a slow recovery over the next two years, according to Australian Property Institute Directions Survey September 2012.
API’s survey of industry professionals found that currently commercial property in Sydney and Brisbane have commenced the upswing whilst Melbourne is at the bottom of the property cycle.
In one year’s time, commercial property in Sydney and Brisbane are expected to move up, however Melbourne will remain at the bottom of the cycle. In two year’s time, commercial property in all three cities is on the upswing, with Melbourne lagging behind Sydney and Brisbane.
Residential property in Sydney is currently seen as commencing the property cycle upswing whereas Brisbane is at the bottom of the cycle and Melbourne has not reach the bottom.
In one year’s time, residential property will move up the recovery path in Sydney and Brisbane, whilst Melbourne will reach the bottom. In two year’s time, the three cities will be moving further along the upswing with Melbourne lagging.
API Victorian Division president Justine Jacono said government incentives are necessary for the residential property development market.
“When asked to comment on the importance of government incentives for the residential property development market, a greater percentage of respondents (93%) rated them as moderately to extremely important compared to 86% six months ago,” she added.
In Victoria, the state government has abolished the first home owners grant but at the same time, promised to gradually reduce stamp duty. Whilst in Queensland, Premier Campbell Newman has revised the first home owners grant, increasing it from $7,000 to $15,000, however it only applies to newly constructed houses or off the plan purchases. First home buyers buying an established dwelling are not eligible.
The survey found industrial property in all three cities is currently seen as on the upswing. In one year’s time, Sydney and Melbourne are expected to remain at the same stage along the upswing whilst Brisbane will catch up. In two year’s time, Brisbane will takeover Sydney and Melbourne.
Respondents believe retail property is nearing the bottom of the cycle in all three cities. In a year’s time, the market is expected to bottom out and a recovery will start in 2014, with Melbourne lagging Sydney and Brisbane.
As a result of the subdued growth, respondents said leasing incentives have increased for Sydney and Melbourne CBDs.
In contrast, in the mining and resources rich markets like Brisbane and Perth, incentives are decreasing. Leasing incentives for Adelaide, Canberra and Hobart remain more varied and remain in the 10-29% range.
Jacono said a larger majority of respondents than in April see incentives for prime commercial property in the Sydney CBDs being in the 20-29% range. Smaller majorities of respondents see leasing incentive levels in the 20-29% range for lower grade property in Sydney CBDs largely due to increases in the ≥ 30% incentive range.
“A smaller majority of respondents see prime property in the Melbourne CBD as having leasing incentive levels in the 10-19% range than six months ago. There is a leaning to incentive levels of 20-29% for prime property in the Melbourne CBD. A Grade and lower grade property in the Melbourne CBD and Suburban CBDs are seen to increase to the 20-29% lease incentive range,” she continued.
The report found 48% of respondents see leasing incentives in the 20-29% range for prime property in Brisbane, with 44% seeing incentives in the 10-19% range, that is, incentive levels are seen to be trending down for prime property. The majority of respondents see Brisbane incentives in the 20-29% range for A Grade and lower grade property.
Perth is still seen as having the lowest level of leasing incentives compared to the other major cities with the majority of respondents seeing incentives in the 0-9% range for Prime and A Grade property. Most respondents see lease incentive levels for lower grade property in Perth in the 0-19% range.
Adelaide and Canberra lease incentives for commercial property are seen to be generally in the 10-19% range but now with leanings to the 20-29% range.
Respondents still have more varied views for Hobart, with incentives seen as mainly in the 10-29% range.
For the next six months, 73% of respondents see stable effective rents for Sydney whilst respondents are more evenly split on whether effective rents will be stable or rise in Brisbane. Over half (54%) of respondents see declining effective rents in Melbourne with a leaning of 42% to stable effective rents.
Jacono said respondents are more evenly split for the 12 month period between predicting stable to increasing effective rents, whereas in Brisbane, the majority of respondents still see effective rents increasing over the next 12 months.
“The majority of respondents predict stable effective rents for Melbourne in the next 12 months with a leaning to declining rents.
“Brisbane is seen to be the stronger market of the three cities for the six and 12 month periods in relation to effective rents,” she said.
Market values and market rentals for commercial property in Brisbane are predicted to increase in the next 12 months, with both predicted to have smaller increases in Sydney but slight reductions are predicted in both for Melbourne.
“Market values and rentals are predicted to increase for Sydney and Brisbane industrial property with smaller increases predicted for Melbourne industrial property.
“Predictions for retail property are the worst for the three property classes with respondents predicting decreases in market values and rentals for the next 12 months in the three cities. However, the decreases in market values and market rentals for Brisbane are slightly smaller than for Sydney and Melbourne. Decreases in market value for retail property in the three cities are predicted to be smaller than six months ago,” Jacono concluded.
Property Review
