Sydney Commercial Property Market:
Office:
Rents in the CBD continue to rise (by 24% in 2007) and vacancy rates fell to 3.7%, the lowest since the late 1980’s. This looks to continue over the next 3 years with net supply to be offset by net absorption (demand by tenants). This market may be more affected by a US slowdown. If the US were to slowdown as occurred in 2001, vacancies may rise to 6%.
Rents in North Sydney rose by 5% in 2007 however, this market remains oversupplied. Steady demand & low new supply should see vacancies drop to around 9% by the end of 2010. The North Sydney market may also see some over spill from CBD tenants looking to push out in search of cheaper rents and better deals. Parramatta rents increased by 11% during 2007 with potential for this to continue as vacancies fall.
Retail:
NSW Retail spending rose by 6.3% in 2007, the highest level since 2002 as job growth, rising population growth & good economic conditions lifted household income. Continued job growth (at least in the first half of 2008) should drive turnover at a faster rate in 2008, before slowing in the subsequent two years.
NSW and Sydney are more open to any slowdown in the US economy. Although expectations are that any impact will be minor. Low levels of new supply will help the market maintain some stability should economic growth or retail spending growth not be as high as expected. Inflation level rental growth is expected over the next three years.
Industrial:
NSW has been one of the weakest economies since the end of the 2000 Olympics. Slow growth has been saved by high imports and storage requirements (warehousing), fuelled by steady growth in private consumption.
Demand for Industrial property should continue to remain robust at least to 2010.
41% of Sydney’s future Industrial supply is in the outer North West. This high level of supply will need a continued strong economy to ensure that some of the more speculative investment is leased up.
Rental growth averaged 15% in 2006 and 4.3% in 2007. Rental growth should be around CPI for 2008 given the high levels of supply, albeit demand is also strong at present.
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( 3 / 10 )Prosper Group, Brisbane and Sydney Property Buyers Agent looks at the state of the residential property market
As a property buyers agent in Sydney and Brisbane we are in the position to observe the property market day in and out. Brisbane
Brisbane is continuing to show solid growth in property values with overall growth of around 3 percent for houses and units during the first four months of 2008. Brisbane house values are now 5 percent or $24,000 higher than Melbourne’s.
Sydney
Sydney value growth is flattening across the board, even in the traditional growth hotspots of the inner city and metrocoastal regions. Six to twelve months ago we were seeing steady growth of 2 to 4 percent in the Eastern Suburbs, North Shore and Northern Beaches. 2008 has been more volatile, with a month of growth followed by a month of decline; virtually a flat market. The exception to the rule seems to be the St George – Sutherland region where value growth has been much steadier. The best performing market during 2008 has been units in South Western Sydney where buyers are opting for units and town homes instead of more expensive houses.
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( 3 / 10 )Prosper Group, leading property Buyers Agent snapshots the Brisbane property market and identifies buying opportunities.
Queensland’s population grew by 90,500 in 2007. International immigrants represented 33,500 of this total.
17,887 new dwellings were approved in 2007, which will do little to cater for the increasing demand.
Brisbane’s affordability levels are almost on par with NSW as loan repayments account for around 38% of the average family income. Three years ago the proportion in Brisbane was 28%, whereas NSW remains unchanged over this period. Further deterioration of affordability in Brisbane is expected due to the recent rate hikes.
Brisbane rental growth was 11.5% in 2007 and is likely to be around 10% in 2008 as there will be little relief in vacancies which is around 1.6%.
Rental growth in Brisbane has averaged almost 9% per annum since march 2005.
Brisbane median house price growth in 2007 was a surprising 16.5% underpinned by strong population growth and strong economic conditions. Price growth in 2008 should be around inflation, as an average.
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Opportunities:
Buyers agent, Prosper Group advise that when considering property investment opportunities in this market, investors should still adhere to the fundamental criteria of property selection. The property should be well located and have good position, have some scarcity value (not in high rise apartment blocks) and also have some opportunity to add some value to the property or increase the yield.
Motivated vendors who have high levels of debt are currently discounting stock to off load it and some properties are being sold up to 10% - 15% below previous valuations.
Opportunities exist for investors to buy well and lock in equity as well as cash in on rising rental yields.
Opportunities exist for homebuyers looking to enter the property market as some properties may be bought below replacement value. Many areas are discounting at present, so it may be a good time to buy and stop paying increasing rents.
Being a buyers agent we are frequently coming accross motivated vendors and as such are continuing to secure great deals for our clients.
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( 3.1 / 31 )Property investors in Sydney are reaping the rewards of the tight residential rental market, with some suburbs recording almost 30% rental increases in just three months.
The NSW Department of Housing Rent and Sales report, which covers every Local Government Area (LGA) in the state, showed that more than half of Sydney’s LGAs racked up double-digit increases in median weekly rents in the 12 months ending March.
Rental properties in each of Sydney’s inner, middle and outer rings saw an increase in median weekly rents of $10 over the quarter, upping their rental figures to $430, $360 and $300 respectively.
For the outer ring – which includes the Blue Mountains LGA – this represented a rise of 3.4%, while the middle ring – which includes Manly and Parramatta – rose by 2.9%, and the inner ring – which includes Sydney and North Sydney – rose by 2.4%.
The median weekly rent rises over the last year were in double figures for all three rings, with the inner ring rising by 11.7%, the middle ring rising by 12.5%, and the outer ring rising by 11.1%.
This represented an annual increase in median weekly rents of $45, $40 and $30 for the inner, middle and outer rings respectively.
"While there’s this void of rental properties, rent will only go one way – and that’s up. Properties that were receiving $300 per week in rental income are now seeing offers of up to $350,” said Real Estate Institute of NSW president Steve Martin. “Rents are expected to increase in excess of 10% pa until some sort of rescue package is put in place. We need government incentives to bring property investors back into the market."
Rental hot spots
Canterbury and Marrickville were very popular among tenants looking for units, as both recorded annual rent rises nearing 20% in both the one- and two-bedroom unit categories.
Marrickville recorded annual rises of 18.2% for one-bedroom dwellings and 17.9% for two-bedroom units, while Canterbury saw rises of 17.6% (one-bedroom units) and 19% (two-bedroom units).
Marrickville also saw an annual double-digit rise of 16% in median weekly rents for two-bedroom separate houses, with Parramatta (19.6%) and Fairfield (25%) also seeing remarkable increases in the same category.
Median weekly rents for three-bedroom separate houses in Sydney’s SD saw healthy growth over the last 12 months, with rents rising by 23% in Ku-ring-gai, 22.9% in Leichhardt and more than 10% over half of the area’s LGAs.
The prime suburb of Woollahra racked up an impressive 28.3% increase in median rent to $1,925 for a four-bedroom dwelling in the three months to March, while the outlying suburb of Cessnock achieved a healthy 20% growth to $300 year-on-year.
"There’s an acute shortage of rental accommodation in Sydney and NSW, and as a consequence rents are increasing dramatically," said Martin.
"Last year a lot of investors sold their rental properties and cashed in on superannuation. These properties were bought by owner-occupiers, reducing the vacancy factor to less than 0.7%."
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( 2.9 / 30 )Leading independent economic forecaster and industry analyst, BIS Shrapnel, expects all Australian residential property markets will experience marginal price increases in 2008/09 as interest rate rises halt price growth rather than force a downturn.
BIS Shrapnel is forecasting another interest rate rise to come through in September quarter 2008. Despite a further rate increase, the average cost of renting is set to rise much more than the cost of buying in 2008/09 and 2009/10, due to the undersupply of new housing.
National population growth of 1.5 per cent is expected in 2008/09, the highest since the late 1980s. Australia is experiencing record net overseas migration inflows which is underpinning what is already strong underlying demand for housing, according to BIS Shrapnel’s Residential Property Prospects, 2008 to 2011 report. With construction of new dwellings below previous peak levels, a rising deficiency of dwellings is also evident in the extremely low vacancy rates and will drive strong rental growth in most cities.
BIS Shrapnel senior project manager and study author, Mr Angie Zigomanis, believes rising rents and improving credit conditions will be the key to the next upturn in prices in most capital cities.
“As credit conditions recover over the course of 2009, we expect banks will gradually pass on lower borrowing rates to customers. This easing will enable house price growth to pick-up in many centres during 2009/10 and 2010/11,” said Zigomanis.
BIS Shrapnel forecasts Brisbane, the Gold Coast, the Sunshine Coast and Darwin will show the strongest price growth through to 2011 due to significant pent-up demand in these markets and strong employment and wages growth, especially in Queensland.
The correction in prices in the Sydney market is expected to lead to stronger price growth towards the end of the decade as demand pressures build, while BIS Shrapnel forecasts more modest growth in Melbourne, Adelaide, Canberra and Hobart over the same period, with Perth trailing even further due to the significant affordability barrier in that city.
Outlook for price growth by region
Sydney
After declining in 2004/05 and 2005/06, house prices in Sydney stabilised in 2006/07 and BIS Shrapnel anticipates the Sydney median house price will reach $550,000 in June 2008.
BIS Shrapnel forecasts the Sydney median house price will reach $560,000 in June 2009, representing a 17 per cent decline in real terms from the March 2004 peak. However, this does not mean Sydney house prices will be undervalued. Zigomanis argues the drop in real terms brings Sydney house prices closer to an equilibrium level, as it reflects long-term price growth from previous market lows of around four per cent per annum in real terms -- this is consistent with the end of other property cycles.
BIS Shrapnel forecasts total growth over the three years to June 2011 to reach 18 per cent, with the strongest growth coming through at the end of the period.
Newcastle and Wollongong
Price levels in Newcastle and Wollongong are significantly lower than across Sydney, with these markets benefiting from the inward migration of residents due to a lack of affordability in the state capital. Total growth in the median house price in Newcastle over the three years to June 2011 is forecast to reach 18 per cent, while the total rise for Wollongong is forecast to be 17 per cent.
Melbourne
Melbourne has experienced strong growth in the median house price in the last 18 months. Following a cumulative rise of five per cent between June 2003 and June 2006, prices rose by 12 per cent in 2006/07, and were capped off by a further 14 per cent increase in the six months to December 2007, according to BIS Shrapnel. This growth was supported by strong underlying demand and a rising deficiency of dwellings, as well as very strong employment and income growth.
However, rising interest rates at the end of 2007 and into March quarter 2008 saw the median house price in Melbourne fall back to $432,500. Zigomanis believes this overstates the decline in the Melbourne market as the March quarter median in Melbourne is often lower due to reduced sales volumes during the holiday period.
Nevertheless, Zigomanis says the drop indicates conditions have eased in Melbourne and BIS Shrapnel forecasts the median house price will reach $455,000 at June 2008, representing price growth of 10 per cent for the financial year.
Rises in interest rates in 2007/08, and a further increase in September quarter 2008, will also have the desired effect of slowing economic conditions. Over the 2008 to 2011 period, BIS Shrapnel forecasts Melbourne’s median house price will rise by a total of 16 per cent, reflecting six per cent price growth in real terms.
Brisbane
House price growth in Brisbane accelerated to 12 per cent in 2006/07, after a pause in 2004/05 and 2005/06, according to BIS Shrapnel.
However, Zigomanis believes healthy underlying demand, together with strong wages growth and outperforming economic growth in Queensland have not only improved affordability for many, but also resulted in a return of confidence in the Brisbane market.
BIS Shrapnel forecasts Brisbane’s median house price will reach $422,000 in June 2008, a rise of 15 per cent for the year. Over the three-year period to 2011, the median house price is forecast to rise by a total of 22 per cent, or 11 per cent in real terms.
Gold Coast and Sunshine Coast
Zigomanis says house prices on the Gold Coast and Sunshine Coast have generally moved in tandem with Brisbane, benefiting from the same drivers of population growth as the capital (i.e. net interstate migration inflows and to a lesser extent, overseas migration).
In the Gold Coast, BIS Shrapnel forecasts prices will increase by 22 per cent over the three years to June 2011, with a similar rise of 22 per cent anticipated for the Sunshine Coast.
Townsville and Cairns
Price growth in Townsville and Cairns was very strong in 2006/07, with the median house price increasing by 34 per cent and 20 per cent respectively, according to BIS Shrapnel. However, price growth halted in the six months to December 2007 in Townsville and slowed in Cairns, suggesting that affordability is emerging as an issue in these regions.
Nevertheless, median prices remain below that of south east Queensland, according to Zigomanis, and local economic conditions remain extremely strong, encouraging higher levels of migration to northern Queensland. At the same time, BIS Shrapnel expects high levels of construction will slowly erode the deficiency of dwellings during the next three years and price growth is subsequently forecast to slow during this period, with cumulative price growth of 16 per cent forecast for Townsville and 19 per cent for Cairns.
Adelaide
After rising by only four per cent in 2005/06, Adelaide’s median house price growth picked up again to nine per cent in 2006/07. Momentum continued into the second half of calendar 2007, with a further 12 per cent growth in the six months to December, followed by a four per cent jump in the March quarter 2008, according to BIS Shrapnel.
While at the state level new dwelling activity appears to be matching underlying demand, Zigomanis believes the low vacancy rates in Adelaide suggest a dwelling deficiency exists in the city, and this has been driving price growth. Moreover, Adelaide’s median house price is the most affordable of the mainland capitals, even allowing for the healthy growth seen in the past 18 months.
However, given finance for owner occupation was down nine per cent during March quarter 2008 on the same period last year, BIS Shrapnel believes turnover could be softening in the Adelaide market in response to the rate rises that have come through since August. Zigomanis expects the Adelaide median house price will rise by 16 per cent over the three years to June 2010, reflecting an increase of six per cent in real terms.
Perth
House price growth in the Perth residential market peaked in December 2006, with a median house price of $460,000. This represents total growth of 178 per cent since June 2001, according to BIS Shrapnel. This increase has been supported by a rise in underlying demand and booming economic conditions led by strong investment in the resources sector.
However, the median house price was close to static in calendar 2007, as affordability constraints began to outweigh any impetus from booming economic conditions and as interest rate rises have hit home, according to Zigomanis.
Purchaser activity has also declined, with total lending for owner occupation in Western Australia falling by 12 per cent in 2006/07, and a further two per cent in the nine months to March 2008 in year-on-year terms, according to BIS Shrapnel. As a result, Zigomanis expects a June quarter 2008 median house price of $460,000, reflecting a two per cent annual increase.
BIS Shrapnel forecasts Perth house prices will remain flat in 2008/09, and grow only marginally in 2009/10. However, after the poor price growth during the three-year period to 2009/10, Zigomanis expects affordability will begin to improve, particularly given the strong wages growth forecast for the state. This will provide some upward pressure on prices in 2010/11, with the median forecast to increase by six per cent.
Hobart
After a 94 per cent increase over the two years to June 2004, Hobart’s median house price growth paused in 2004/05, before increasing solidly in 2005/06 and 2006/07. After consistently experiencing a net outflow of residents to the mainland states, Tasmania’s interstate inflow/outflow is now roughly in balance, according to BIS Shrapnel.
Zigomanis forecasts Hobart’s median house price will reach $320,000 in June 2008, however demand will become more subdued going forward, as a net interstate migration outflow develops. Higher interest rates from 2007/08 will also have an impact. As a result, Hobart’s median house price growth is forecast to rise by 14 per cent over the 2008 to 2011 period, reflecting an increase of four per cent in real terms.
Canberra
After a five per cent decline in Canberra’s median house price in 2004/05, prices have rebounded between 2005/06 and 2007/08, with the capital’s median house price reaching $457,500 in December 2007, according to BIS Shrapnel.
Price growth in Canberra has reflected the correction in 2004/05, and has been driven by a boost to interstate migration generated by continued strong growth in Federal Government employment and wages growth. However, Zigomanis warns this may not continue with uncertainty around public sector employment after the election of the new Government. Consequently, minimal median house price growth is expected in the first half of 2008 and BIS Shrapnel forecasts prices will increase by a total of 15 per cent over the three years to June 2011, which reflects a rise of five per cent in real terms.
Darwin
Darwin’s median house price increased by 25 per cent in 2005/06, maintained solid growth in 2006/07 and sustained momentum (albeit slowing slightly) into 2007/08, according to BIS Shrapnel. The Northern Territory has benefited from a boom in mining and resources investment, which has translated to a boost to demand as the net interstate migration outflow prior to 2004/05 has improved to a general balance during the past three years.
At $412,500 in December 2007, BIS Shrapnel believes Darwin’s median house price is relatively affordable compared to the other mainland capitals, particularly given the potential for higher levels of income in this region.
BIS Shrapnel forecasts the Darwin median house price will increase 21 per cent over the three years to June 2011, or a 10 per cent increase in real terms.
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