Infrastructure Investment Unlocks Commercial Opportunities
Toowoomba’s commercial real estate market has been performing strongly, driven by the region’s diverse business sectors and strategic infrastructure investments. The city’s growing reputation as a logistics and industrial hub has spurred demand for industrial properties, particularly in sectors like warehousing, distribution, and manufacturing. New industrial precincts are emerging around key infrastructure assets such as the Wellcamp Airport and the Toowoomba Bypass, which have significantly enhanced the region’s connectivity to national and international markets.
Investor interest in Toowoomba’s commercial sector remains solid, with yields in industrial properties showing resilience amidst broader market fluctuations. Demand for logistics and industrial space has been particularly robust, with vacancy rates tightening as new developments attract long-term tenants. The development of the InterLinkSQ project and the forthcoming Inland Rail are anticipated to further stimulate demand for industrial spaces, positioning Toowoomba as a critical logistics hub in Queensland.
Moreover, the rise of data centres in the region is opening up new avenues for the commercial property market. As tech companies and service providers increasingly seek locations with reliable infrastructure and access to renewable energy, Toowoomba’s commercial property sector is benefitting from the influx of these businesses.
Retail and office space are also seeing stable demand, supported by Toowoomba’s steady population growth and its role as a regional centre for education and healthcare. Businesses in these sectors continue to thrive, contributing to a balanced commercial real estate market. The city’s strong infrastructure, including the Wellcamp Airport and expanding industrial developments, supports both local business expansion and investor confidence, helping to drive the performance of the commercial market in Toowoomba.
Cover image: 152-154 Margaret Street, Toowoomba City
Key Market Indicators
16-20 Project St, Warwick
Macroeconomic Update
Inflation
Monthly CPI data measuring the price movements of goods and services over August 2024 revealed a large downward shift in inflation. This was expected given both state and federal government electricity subsidies were reflected in the cost of electricity, and there was also a large expected falls in automotive fuel. The best measure to look at in the data is the trimmed mean, which fell on an annual basis from 3.8 per cent in July 2024 to 3.4 per cent. While still outside the RBA’s target range, it is moving in the right direction and at a consistent pace. Of more concern is continued sticky inflation in the areas of health, insurance, education and new dwelling purchases. Rent inflation is still high, however, indications are that rent increases have stabilized across most of the country. This stabilization, however, will take some time to be reflected in the ABS’s data.
Retail Trade
Overall retail Trade recorded 0.7 per cent month on month growth over the month of August 2024. This is a rise of 3.1 per cent year on year. While this growth appears solid, it was mostly attributable to a warmer than normal August, encouraging consumers to buy items they usually buy in Spring. Growth in household goods retailing continues to be flat, and is 4 per cent lower than it was in August 2022, despite very substantial population growth over the last two years. Household goods spending usually rises in line with population growth and housing completions, so the lack of growth reflects not just the lack of discretionary spending that consumers have, but also the slowdown in household completions.
Business and Consumer Sentiment
Both business and consumer confidence shifted downwards over the month of August, with consumer confidence remaining deep in negative territory and business confidence falling back into negative territory. Of most concern, both NAB’s Business Survey and Westpac’s Consumer Survey report deterioration in the outlook for the labour force. On the consumer side, employed persons, in particular, are more negative about the outlook for employment, while the business conditions index slid mostly due to a large fall in the employment sub index.
While the unemployment rate is rising at a gentle pace, we are now entering a period where almost all forward indicators of employment conditions are pointing in one direction – and that is to a sustained continued increase in the unemployment rate.
18-20 Hanna Court, Kearneys Spring
Labour Force
The Australian labour force remained very steady over August 2024, with both the trend and seasonally adjusted unemployment remaining unchanged from the previous month’s release. This is good news for the RBA, who remain hopeful that their monetary policy tightening measures do not lift the unemployment rate beyond their forecasts – which is 4.3 per cent by December 2024 and 4.4 per cent by March 2025, where their position is that it will remain until at least December 2026.
The Australian labour force appears to be in better shape than the US, where revisions to historic data over the past few months have been significant and in the negative. This may be one of the reasons why the US Federal Reserve made the decision overnight for a surprise 0.5 percentage point cut to their cash rate. However, it will be duly noted by both the RBA and the Federal Government that Australia’s economic outcomes have been lagging the US by roughly 6 months over this policy cycle. Therefore, they will be keeping a close eye on any forward guidance that the labour force is about to weaken more than is expected. Thus far though, it can be argued that the RBA is successfully ‘threading the needle’ to a soft landing out of this inflationary period.
Interest Rates
The decision by the Reserve Bank of Australia (RBA) board at their September meeting to leave rates on hold is unsurprising given the relatively steady nature of the most important data points that the bank is watching – those being inflation and labour force. Both measures are performing broadly as the RBA had forecast, and are not currently presenting them with any need to alter their thinking around the timing of the first cut to the cash rate. The most significant change in developments over the past few months was the US Federal Reserve’s somewhat surprising 50bps point cut to the US cash rate.
If the data continues it’s current trajectory of slowly softening, then the RBA is unlikely to change course and the first cut is unlikely to be before the year is out. However, one soft unemployment report could change this thinking quite rapidly.
Impact on Commercial Property Market
A continued softening in economic conditions, still in the area of discretionary retail but also now in the labour force, means that demand for retail property will be subdued as retailers face very difficult trading conditions. Businesses are now investing very cautiously, as slowing demand has rippled throughout the economy. Still, the unemployment rate is very low, and investment in human capital appears to be taking precedence over investment capital.
Employment markets and business conditions
Labour Force
The Darling Downs Employment Region has recorded good employment growth over the year to July 2024, although it has slowed from the previous year. There was an increase in 3,800 working people in the region, or 2.6 per cent over the year. This growth in employment is now slower than in both Queensland and Australia overall. However, the unemployment rate in Darling Downs of 3.8 per cent is still well below the state and national rates, suggesting the labour market may be slowing due to capacity constraints.
Source: Jobs & Skills Australia, Labour Market Data Dashboard, Darling Downs
The unemployment rate in Toowoomba LGA is currently well below the long term average of 4.9 per cent. There has been a significant downward trend in the unemployment rate since June 2022, indicating the strength of the local economy over the past two years. Capacity constraints are now the biggest factor in slowing employment growth in Toowoomba.
28 Bell St, Toowoomba City
439 Ruthven St Toowoomba City
LGA, Unemployment Rate (Smoothed)
Source: Jobs & Skills Australia, Small Area Labour Markets
While the largest employing industry in the Darling Downs is still Healthcare & Social Services, there has been a recent large increase in the proportion of the working population in Construction. Reflective of the weak conditions in consumer spending, retail trade is no longer in the top 5 largest employers in the Darling Downs region. Good opportunities and high paying roles are likely attracting more workers to this sector.
Toowoomba
Torrington Industrial Park
Largest Employing Industries, Darling Downs
Health Care and Social Assistance
Agriculture, Forestry and Fishing
Education and Training
Aug-24 Aug-23
Source: Jobs & Skills Australia, Labour Market Data Dashboard, Darling Downs
2&4_322 James Street, Harristown
Business Conditions
Both Darling Downs – East and Toowoomba feature in the Top 3 locations in Queensland for Business Risk. This means that businesses in these areas have some of the lowest failure rates in the State. By August 2025, CreditorWatch Business Risk Index predicts that 4.84 per cent of businesses in Darling Downs – East SA3 will fail. While in Toowoomba SA3, this rate is predicted to be 4.95 per cent. These are both well below the Australian average, and at rates that low, are ranked as very stable locations for commercial property tenants.
Business Risk Index - Best Ranked SA3s in Queensland (August 2024)
Impact on Commercial Property Market
Labour force data tells us that the Toowoomba region is showing good resilience in the face of difficult economic conditions, although capacity constraints are now impacting employment growth. Employment in the retail space has been impacted by the slowdown in consumer spending and difficult trading conditions in the café and restaurant sector. However, employment has shown strength in the construction sector, highlighting the depth of economic make up of Toowoomba. These developments have been reflected in commercial market activity, where investors are still keen for industrial assets, but demand for retail assets has slowed, especially those with a kitchen and operating as a café or restaurant.
Development and Investment Activity
One of the biggest projects underway is the development of the new Toowoomba Hospital. As of May 2024, the project is now under construction and due for completion in 2027.
The new hospital will provide an additional 118 beds across medical, surgical, maternity, coronary and intensive care units, enhancing access to a range of services for the Darling Downs community. It will also provide emergency department treatment spaces, outpatient consultation rooms and diagnostic rooms as well as medical imaging, pharmacy, and pathology services, administration, education and training facilities for hospital staff.
Overall, development in the office and retail sectors has slowed significantly as high construction costs, weak demand, high interest rates and rising capitalization rates make it very difficult for developers to get feasibilities to stack up.
There is still good demand for industrial lots in the sub 3,000sqm space, however demand is not meeting supply as most lots are over 4,000sqm. There is also strong demand for existing industrial facilities, however most developers holding available lots are reluctant to speculatively build facilities due to high costs and an unwillingness to take on the leasing and/or sale risk in this environment.
Future Development Opportunities
Outlook
Investment
Toowoomba is still attracting substantial interest from interstate investors – particularly from NSW and Victoria and in the sub $1.5 million dollar space. These investors are predominantly investing via a SMSF or cash buyers. Smaller funds that in the pre-covid era would have looked at Toowoomba due to the yield arbitrage on offer are now very quiet. This is predominately due to a lack of funding and these types of investors being turned off anything that has a shorter lease – which they typically do in regional areas – or more localised tenant covenants. This is very much the case in the retail and office sectors, with institutional investors still active in the industrial sector, albeit now with a disconnect between buyer and seller expectations on price.
Leasing
Incentives in the office sector are still relatively high, and tenants have a strong preference for quality, fitted office space. Fitted space is leasing well and quickly, while old fitouts and unfitted space are much harder to lease. This is a trend being seen around the country, as tenants do not want to deal with the cost, time and uncertainty of building their own fitout.
Demand in the retail sector is weak given the weak trading conditions. Some landlords with existing kitchens are preferring to remove these and switch to tenants who are not in the café and restaurant sector, due to the very difficult trading conditions that these businesses are enduring.
Demand for industrial space is still good, and increasing construction employment in the area supports this as an ongoing trend. That being said, many industrial tenants are at the limit of what they are willing to pay in rent given the large run up in industrial rents since the covid era. This is resulting in slower actual leasing activity until landlords and tenants have more similar expectations.
Supply
Supply of commercial property across all sectors is expected to be weak over at least the next year, as landholders are very reluctant to speculatively build assets, and feasibilities for pre-leased space increasingly difficult to make work. This should, over time, support rental growth in the commercial property market in Toowoomba, which in turn will promote the next supply cycle which is likely to begin around 2026.
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