As an investment destination, Brisbane is having a very exciting year. For many investors, it’s proving the perfect commercial property market for investment. Meanwhile, Sydney and Melbourne are still receiving most of the attention.
Brisbane carries the stigma of a large country town, far from a small city but not quite matching the muscle of its east coast siblings, NSW and VIC. And Australia’s largest capital cities, Sydney and Melbourne, are catching most of the limelight from both domestic and international investors, recording giant commercial property investment deals and offering large capital growth opportunities. (At least, that’s what the NSW and VIC flag bearers will tell you.)
But if you’re searching for a hot commercial real estate investment before popping the cork on yet another year, you’d be smart to take another look at Brisbane.
Brisbane is a growth city, with a long pipeline of infrastructure works and a population that’s exceeding the growth rate of any other Australian city. Brisbane will host the Olympic Games in a decade’s time, and by then its $146-billion economy is predicted to grow to more than $217 billion.
For investors with a keen eye on their investment budget in 2021, Brisbane offers reasonable pricing across its commercial property market. Which begs the question, is Brisbane’s commercial real estate market undervalued compared to Sydney and Melbourne?
We think so. Here’s why.
1. Cheap for buyers
Brisbane property is comparably much cheaper than Melbourne and Sydney. Investment capital stretches much further in Brisbane, which doesn’t quite share the glamour or global recognition of its eastern seaboard counterparts.
But a lower bar to entry doesn’t mean Brisbane is offering lower quality opportunities. After all, Brisbane is not that secondary to Sydney or Melbourne. Brisbane has room for prices to heavily rise. In fact, we’re already seeing that price increase occur.
2. Repricing of risk
The investment environment has seen a large change since many landlords first purchased their Brisbane asset, with interest rates in particular seeing a sharp decline in the last two years.
Investors have since responded to these market changes, and have realised that Brisbane represents a relatively low-risk commercial real estate market compared to where that pricing previously was.
3. An infrastructure boom
Brisbane is a busy city, and the pipeline of infrastructure works is tipped to continue. The next ten years will see over $50 billion in infrastructure developments completed, as Brisbane prepares to host the Olympics in 2032.
The pipeline of works is driving Brisbane’s popularity as a destination for both domestic and foreign commercial real estate investors to park their capital.
4. Higher rental yields
Yields in Brisbane are typically fetching between 5 per cent and 7 per cent for commercial property investors.
At the same time, comparable investments in Sydney and Melbourne are offering yields anywhere between 3 per cent 4 per cent. And investors are still pouring into VIC and NSW. Those who prioritise rental income should find the time to assess Brisbane investment potential, especially while the city’s vacancies continue to drop.
5. Limited opportunities means higher capital growth
Brisbane’s existing investors are reluctant to sell. This is particularly true for industrial logistics assets, which landlords are gripping to as the sector’s demand defies gravity. According to data from realcommercial.com.au, around 20 per cent of investors specifically searched for industrial and warehouse investment opportunities in the year to May 2021.
Low interest rates are aiding in landlords’ ability to hold their existing assets, and with Brisbane investors’ expectation that the market will continue its strength well into 2022…. Why sell?
Investors are looking to get into the Brisbane commercial property market for the same reason. The result of scarce opportunities is putting upward pressure on commercial property values.
6. Resilience to COVID-19
Queensland’s economy continues to show its resilience in the face of adversity and uncertainty. Industry confidence has almost tripled since the height of the pandemic, and much of the confidence was built from the city’s ability to get back to work while lockdowns threatened to cripple the state.
Since the pandemic hit Australian shores, Brisbane has seen far fewer lockdowns than Sydney and Melbourne, owing to its ability to bounce back against the coronavirus.
Investing in Brisbane commercial real estate
As with every investment, investors should be wary of the risks. One of those risks is for Brisbane to overshoot in the coming years, as more investors inevitably shift their attention to the growing city. The same risk is attaching itself to Melbourne, where the volume of investment attention has overflowed in comparison to the number of available investment opportunities.
However, this is a characteristic of a property cycle, and should be of little concern to those investors who know how to predict the property market’s future with some accuracy and clarity.
If you don’t have the experience in commercial real estate investment, or lack the time to conduct thorough research and due diligence on an investment opportunity, you should consider investing with a commercial property syndicate or unlisted property trust.
A team of experts handle your investment from acquisition to divestment, leaving you to sit back and reap the benefits. It’s a set and forget investment, and one that has helped many Australians create a very impressive nest egg.
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