A few words from our Director Phil Levesque about the market in 2017 and what to expect in 2018.
Qld had another tough year for office leasing. Vacancy rates remain high in the CBD and the fringe. The first half of 2017 was very slow, but the second half started to pick up with new requirements entering the market. Landlords must be competitive with effective rentals reaching low $300’s/sqm for good grade buildings in the fringe, and incentives are still high with up to 30% a regular occurrence.
We believe the worst is behind us and the office market is starting to show signs of recovery for 2018, but growth will be slow. Tenants should look at securing deals now before the market fully corrects itself. Whereas landlords should look at reviewing their pricing and incentive strategy knowing the market is on an upwards trajectory.
We have found an undersupply of 10,000sqm + stock in 2017, and a slow 3000-7000sqm market. However the second half of 2017 has been exciting with a surge in demand across most stock, and we expect this trend to continue in 2018 as interest rates are likely to rise. Tenants should look at locking down long leases to take advantage of some bargain rents still in the marketplace, whilst landlords should look at 2018 as a year that should be positive with rent adjustments due to a higher demand expected.
Similar to the office market, the retail leasing market was sluggish in early 2017 but has come back in strength in spring. Franchisors saw good opportunities in the market and tried to lock down deals, but many of them unable to find suitable franchisees in the earlier part of the year. As expected with Christmas on the horizon, retailers are rushed by the urgency of the spending season arriving and in late 2017 they came out in force looking to secure a site, fitout their shop and start trading by December. Rents had suffered in 2017 due to low demand, but landlords should look at positioning their vacancies prominently with good marketing to attract the good operating retailers still looking for space.
Some office landlords who were unable to hold on to some long vacancies have been forced to sell off at low rates per sqm in 2017. Therefore, it was a good time to buy if you were an owner occupier. But with the office market coming back, investors should take a risk and look at securing office spaces even if they are vacant as the market will surely reward them with a new tenant, at a rent higher than what could have been achieved in 2017 and a good return on investment over the coming years.
In the industrial market, yields have been strong but are now showing signs of softening. This was due to strong demand by both owner occupiers and investors as a result of continued low interest rates throughout 2017. 2018 is expected to see some of the heat coming off the incredibly strong buyer market, as leasing activity reactivates.
As for retail sales, the SMSF buyer still want strong retail investments under $1m. The opportunities are rare and those investors will pay a premium to secure them. We don’t see this trend slowing down in the short to medium term. The shopping centre category, especially around $20m, is still in high demand and still fetch record yields. Supply remains low, so the advice for landlords is, if you’re thinking of selling your shopping centre in the coming years, now is the time to ride the gravy train !