Corporate Park East Owner's Report - March 2024

Corporate Park East

Corporate Park East Summary

Welcome to our quarterly wrap up of Corporate Park East activity.

Much has happened since December last year, both locally and nationally, that has played a hand in shaping the current state of the CPE market. We have seen some record sale and lease rates achieved, a shift in supply numbers of certain building sizes and some larger economic drivers that have us shifting a few key predictions for what is coming next quarter.

The following report is designed to give you the insights and market knowledge necessary to help you make better commercial property decisions. We start with a look at the national market drivers before zooming in to more local activity and the actual lease, sale and building stock levels on Corporate Park East. We’re lucky to have the largest active team in the Northern Corridor providing us with real time market feedback from hundreds of enquiries per quarter.

We trust you will find some useful insights in this report and invite you to call up or call in to our office and discuss what this all means for your specific property and where the opportunity might be for you.

Chris Massie Director

0412 490 840

chris.massie@raywhite.com

Aaron Canavan

Commercial Principal

0447 744 948

aaron.canavan@raywhite.com

James Garnett

Sales & Leasing Associate

0422 087 745

james.garnett@raywhite.com

Troy Sturgess

Sales & Leasing Executive

0432 701 600

troy.sturgess@raywhite.com

Ashley Rees Director

0411 707 410

ashley.rees@raywhite.com

Michael Nides

Sales & Leasing Associate

0468 517 956

michael.nides@raywhite.com

Market Sentiment

“These are the national market factors that had the most impact on your Corporate Park East property in the last quarter and that are shaping 2024”

-Ashley Rees, SeniorAnalyst

CPI & Interest Rates

Market confidence had a double shot of improvement in February, with the December quarter inflation showing a much lower than expected increase of 0.6%, which made the annualised CPI for 2023 only 4.1%.

This is a massive fall from the 7.8% a year before and was proof enough for the Reserve Bank to keep interest rates on hold in February and for some industry experts to start predicting rate cuts as early as May.

KPMG recently predicted 0.5% drop in 2024 and the same in 2025.

Construction Costs

Overall it has been encouraging news on this front. The Cordell Construction Cost Index (CCCI) showed only a slight lift of 0.1% in average residential construction costs in Queensland this quarter, which is the lowest since 2001. This is normally reflected in commercial construction prices, though commercial is a little more exposed to steel and concrete prices. The Olympics infrastructure pipeline will still put pressure on concrete and labour for our area and will see private developers struggling to attract the attention ofTier 1 builders. Residential approvals are still low, so we don’t expect to see a quick spike in building demand (and price increases) until that changes.

Developers looking to build in 2024 should rest a little easier, not having to face the rapid price increases of 2021-2022. Building prices have increased 26.6% since COVID, but property values have increased by 36.5% across the board.

Market Sentiment

Commercial Sales Volumes at Record Low in 2023

2023 saw about $50 billion of commercial property change hands across the country, which was down from $67 billion in 2022 and $95 billion in 2021. On the face of it, this could be a worrying trend for property owners looking for a result in 2024, but the truth is likely quite different. What this number actually reflects is how many people were sitting on the fence for two years while interest rates were so volatile, as well as the number of owner-occupiers who defaulted back to leasing rather than buying.

Now that interest rates have levelled off, we predict increased activity from buyer and sellers who are now comfortable with making a decision. More encouragingly, Industrial assets made up 30% of all commercial sales and sentiment for the sector continues to strengthen.

Overseas Migration at Record High

Predictions at the start of 2023 had expected international migration at 190,000 but the end result was actually over 600,000. This is compounding the housing shortage and putting pressure on the government to deliver affordable housing solutions. The Northern Corridor will continue to be a major beneficiary of this pressure, as we have the approved, zoned and serviced land capable of delivering product (Aura, Caboolture West, etc)

Demand for industrial tenancies is directly linked to the number of new letter boxes we can expect to see in a given suburb, as companies position themselves to serve the new population.

Tenant Protection & Negative Gearing Chatter Scaring Residential Investors

The affordable housing crisis is leading to a string of new legislations and political chatter that has residential investors scared and looking to jump the fence into commercial. The state government’s housing shake-up called Homes for Queenslanders has brought in a raft of changes that provide tenants with more protection and will make life harder for residential property owners. Main changes affecting owners are caps on rent increases, no competitive bidding and more freedom and protection for tenants.

Adding to this is the pressure from the Greens party for Labour to reopen debate around negative gearing changes for property investors. While we don’t expect any changes to actually occur on this front, just the conversation has already lead to more enquiry from residential investors switching to commercial, which is good for the sub $1 million strata market. Commercial lease terms are normally much more in favour of the owner than residential.

Demand Summary

The following is a summary of what our team is seeing at the coalface of Corporate Park East property activity over the last quarter:

Owner Occupiers:

The story here remains similar to last quarter, with the owner-occupier market remaining good but not great. Finance is proving harder to secure but there is still appetite among lenders. Valuers are more cautious, but are responsive to real time evidence from our team that factors in land cost increases.

Investors:

The investor sector has levelled off in the last quarter due to the inflation and interest rate trend. They are seeing this as the peak of cost-of-funds but are still cautious.Yield expectation has settled in the mid 6% range at present, with some premium tenants still dipping below 6.0%. Much of our work is going into helping buyers understand the replacement costs, land constraints and population demands of this area are, so they do not get fixated on passing yield.

Tenants:

The start of this year delivered the same pattern our senior agents have seen for years. High enquiry activity from tenants in the first three weeks of the year but then getting them to inspect becomes very difficult as business owners get back into the weeds of daily operation. We saw a run of government funded tenancies convert as departments look to spend their budgets before local and state caretaker modes kick in.Tenant demand in the smaller builders has been lower than we would like, but our team is still converting a steady flow of deals at rates that are protecting asset values for all in the park.

“Watch for the sub-200m2 investor market to regain a bit of lost momentum as residential investors make the shift to avoid the coming tenant protection and negative gearing turmoil”

-Ashley Rees, SeniorAnalyst

Last Quarter Transactions

The following is a summary of all the transactions completed by our team:

Current Stock on Market

Stock Summary

We see the bulk of our current stock for both sale and lease falls within the sub 300m2 range, with a limited number of warehouses exceeding 1,000m2 also available.Those developers yet to build should be interested in the persistent gap in available stock within the 300-1000m2 range.

Recent transaction data show 50% of our sale and lease transactions falling within the 300-1000m2 range, indicating sustained demand in this segment. We expect the strong recent enquiry in the 1,000m2+ stand-alone bracket should yield results for those owners before the Easter break.

Current Sale Stock on Market

Current Lease Stock on Market

Construction Progress

Your NGC Caboolture Team

Chris Massie Director 0412 490 840 chris.massie@raywhite.com

Troy Sturgess

Sales & Leasing Executive 0432 701 600 troy.sturgess@raywhite.com

Aaron Canavan

Commercial Principal 0447 744 948 aaron.canavan@raywhite.com

Michael Nides

Sales & Leasing Associate 0468 517 956 michael.nides@raywhite.com

James Garnett

Sales & Leasing Associate 0422 087 745 james.garnett@raywhite.com

raywhitecommercialncg.com