The Queensland economy has performed strongly over the past decade, with favourable outcomes being recorded on several fronts. Population growth, the ongoing resources boom, economic diversification, industrial production increases and robust corporate earnings have fuelled expansion and capital spending in the industrial market. The strong fundamentals of the ‘Sunshine State’ have been a boon for many national companies over the past few years.
In 2008, however, the monetary stance of the Reserve Bank of Australia combined with global uncertainty, the recent downward trend in business and consumer sentiment, the hike in oil prices and continued fall out from the US sub-prime mortgage crisis and subsequent credit crunch have all taken their toll on economic growth, even in sunny Queensland.
Another factor influencing market activity has been reconfiguration in national supply chain models. Demand for industrial land in Queensland in recent years has been boosted in part by a change in up-line service capabilities performed offshore. Containerised product that may have shipped to other Australian ports and be on-forwarded via an NDC on reconfiguration can now be shipped directly offshore to Brisbane. While the majority of this take-up has probably already transitioned, it would be still be expected that further growth in direct container movement will continue until the natural share of east coast trade, more reflective of population size and growth of its market (being Queensland), is met in direct comparison to the other major container ports.
The vast majority of industrial stock in Queensland remains within south-east Queensland, with a small concentration of industrial activity spread throughout regional areas. Gladstone and Townsville are known as manufacturing and processing hubs, while Toowoomba, Rockhampton, Mackay and Cairns are growing in popularity as service-oriented industrial hubs.
Approximately 1.25 million square metres of industrial space is in the pipeline for development in South East Queensland with an expected 2008 completion. It is likely, however, that some proposed projects will not proceed or the timing will fall into 2009 as further interest rate rises and difficulties in obtaining credit could affect the feasibility of some of these projects. The bulk of activity remains within the Brisbane metropolitan area, with the Western Corridor accounting for 34% of new supply, followed by the TradeCoast (24%), the M1 Corridor/ South (12%) and the North (9%). The Gold Coast, including the Yatala Enterprise Area, will account for 14% of new supply, with the Yatala Enterprise Area accounting for 7% on its own. The Sunshine Coast is expected to account for 5% of new developments.
Industrial parks close to existing infrastructure such as road, rail and port networks continue to drive the market, particularly for smaller developments. Developments under 5,000 sqm account for 51% of the total 2008 supply pipeline. This development pattern is largely a function of high population growth, with these smaller properties containing businesses servicing the strong residential development sector.
Larger buildings above 15,000 sqm are becoming increasingly popular. Some of the largest projects due for completion in SEQ during 2008 include four warehouse buildings at Interchange Business Park, Wacol, which will potentially support over 50,000 sqm of warehouse and office space; two warehouses at Insight logistics Park, Yatala (40,782 sqm); and a Coles Group distribution centre at Southlink Business Park, Parkinson (42,810 sqm).
In relation to new business, the Trade Coast region is in the box seat to accommodate future industry requirements given the area’s strong links to current and planned infrastructure, a third stevedore, and location at the centre of a strong and growing region.
Tenant demand for warehouse and distribution space remains steady. Given the current economic environment there is a risk that slowing economic growth may have a greater than anticipated negative impact on business confidence and consequently on tenant demand. Rental growth is, however, likely to remain positive, albeit modest, in the short term reflecting an increased requirement for higher office components in some properties.
Prime warehouse and distribution centre rents averaged $115/sqm as at June 2008, while secondary warehouse and distribution centre rents averaged $90/sqm. Hightech rents were in the order of $220/sqm to $230/sqm for 500-sqm premises while larger premises of between 3,000 sqm to 4,000 sqm were achieving from $140/sqm to $150/sqm.
Industrial land has been in short supply. This has resulted in the outer markets including the Yatala Enterprise Area, the Western Corridor and the North growing at a fast pace. This is also the case on the Sunshine Coast, where the current supply of land is insufficient to cope with increasing demand. This has driven land prices upwards, with blocks of above one hectare averaging $375/sqm as at June 2008 and smaller lots averaging around $470/sqm. Smaller lots in sought-after locations are demanding $670/sqm or higher.
Large industrial-zoned parcels of land yet to be serviced by roads, power and water are becoming popular with developers. These blocks of land enable the developer to tailor their product to meet market demand. There is approximately 400 hectares of land scheduled to be released to the market during 2008/09 in South East Queensland. This increased supply coupled with the uncertainty in the economy may lead to a slow down in the high rate of land price growth that has been occurring.
Over the past few years there has been a quantum shift in the investor perception of Brisbane’s industrial market, with an increase in institutional interest alongside the usual owner occupier and private investor demand. Supply in the past has struggled to keep up with demand, however, due to a considerable degree of uncertainty over-shadowing the market across South East Queensland, transactional activity has slowed during the first half of 2008.
Yields as at June 2008 have softened to range between 7.00% and 8.00% for prime warehouse and distribution centres. Secondary yields ranged between 7.25% and 8.25%. Rising interest rates have had an impact on investor demand and, as a result, yields are expected to soften further during 2008 creating some better buying opportunities for investors and occupiers alike.
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