In a recent interview with ausbiz, RAM Group CEO Scott Kelly shared his take on why the Brisbane commercial office property market is benefiting from supply constraints and rising demand.
Once-in-a-cycle opportunity
Brisbane has one of the fastest growing office markets in the Asia-Pacific region, supported by $185bn of major infrastructure projects planned through to 2032 in southeast Queensland.
“We’ve got a once-in-a-cycle opportunity emerging in Brisbane, and that’s being driven by an intriguing supply-demand dynamic,” Scott told ausbiz.
Scott cited geography, labour costs and residential conversions as affecting supply.
“New office supply is constrained by factors such as higher construction costs and a landlocked CBD, meaning it may not be economic to build new office towers in Brisbane.
“You can buy assets in Brisbane’s CBD for between 20% and 50% below replacement costs – much cheaper than you can build them – so that will also constrain supply.”
On the demand side, Scott cited trends such as demographics, working practices and the upcoming 2032 Olympic Games.
“Population growth in Brisbane is stronger than any other capital city in Australia, fuelled predominantly by interstate migration,” Scott said.
“By 2040 you could see almost two million people being added to the population in Brisbane, and that would equate to about a million jobs. And that would flow through into demand for office space.”
He said the local office market is benefiting from workers returning to the office, with 88% of the workforce back, compared with 61% in Melbourne and 76% in Sydney.
“If you think about the next ten years for southeast Queensland, it’s a very attractive dynamic.”
Seize the moment
Scott said this could be an opportune time for investors to buy in.
“We think it gives investors a great opportunity to enter at the back end of this cycle because you’re getting in at great prices with yields of 7-9% and capital or total returns of 15%.”
As an example of an attractive CBD office investment, Scott cited 333 Ann Street, which RAM is recapitalising as an A-grade trophy asset.
“You can buy it at a 7.8% cap rate and we think in a few years that will be 6.5%, which equates to a 15% annualised return over a three-year period. The building is 97% occupied and 250 metres from the central station so it’s bang in the middle of the CBD. There are no construction costs, no leasing costs, no planning costs and no planning risk. We think it’s really attractive on a risk-adjusted basis.”
For more about the Brisbane office market, watch the full interview on Ausbiz below.
