End of Financial Year Report FY24
Executive Summary
The post-COVID-19 commercial property market has shown varied outcomes. Rising interest rates quickly deterred speculative first-time buyers seeking to diversify their portfolios. For many sellers, higher financing costs potentially limited strong capital gains, leading to a more cautious approach. Both buyers and sellers adopted a "wait and see" position due to uncertainty about interest rate fluctuations and the potential impact on property values.
This caution was particularly evident across the larger end of the market, with institutional activity decreasing over the past two financial years. However, the smaller market segment continued to function, albeit with less urgency, resulting in lower sales volumes compared to the active 2021/22 period.
In the Bayside region, this reduced confidence led to limited listing activity. Property owners were reluctant to test new yield realities, and those not compelled to sell chose to hold their assets. Despite increased financing costs, the region maintained a sizeable buyer pool, including local private investors, owneroccupiers seeking their own premises, and more recently, new investors (led by buyers’ agents) willing to spend up to $10 million.
This diverse buyer pool has prevented yields from changing as rapidly as initially expected, despite the cash rate increasing by over 400 basis points. Ongoing market confidence encouraged more assets to come to market, while stable interest rates and anticipated decreases boosted overall market confidence.
Locally, high population growth, continued infrastructure investment, and elevated construction costs fueled interest in Bayside commercial property as a secure investment. While persistent inflationary pressures and cost of living increases have had an impact, supply issues and a generally robust business environment have ensured that FY24 was a positive year for commercial property in the Bayside. With all indicators pointing toward a pending interest rate cut, FY25 is well-positioned for strong growth.
NATHAN MOORE Director RWC Bayside
2023/24 commercial turnover by asset class
Investment in the Bayside region reached its peak during the 2021/22 financial year with transactions totalling $345.56 million. This figure, however, was significantly influenced by a large retail centre sale. Before the pandemic, annual sales in the region typically averaged around $100 million with up to 80 sales transactions recorded each year.
Despite a decrease in transaction volume following the pandemic, the region still saw substantial activity. In the 2022/23 and 2023/24 fiscal years, sales volumes reached $206.92 million and $151.95 million respectively, representing over 100 deals annually.
The average deal size over these two years was approximately $1.5 million, making investment in Bayside commercial property accessible to a range of smaller buyers and owner-occupiers.
Source:RWCBayside
Historically, industrial properties have been the most sought-after asset type. The abundance of smaller industrial unit opportunities attracted local investors and small businesses looking to capitalise on this growing investment class, while occupiers hedge against rising rents. Retail properties have also remained competitive, despite the challenges posed by online shopping to traditional brick-and-mortar stores.
Queensland's growing population has positively impacted most commercial asset classes, especially given the slowdown in new construction due to high building costs driven by both labour and raw material expenses. In recent years, there has been increasing interest in alternative sectors such as medical facilities, again in response to population growth. However, certain assets like childcare facilities have seen limited activity across the region in the past few years.
2023/24 commercial transactions by asset class
In the past 12 months, commercial sales in the Bayside region totalled $151.95 million. This represents a 26.57% decrease from the previous year and a 56.02% decline from the peak period of 2021/22. Industrial sales volumes were notably limited this year, accounting for 31.01% of total sales, down from over half of all sales last year. While quality industrial assets remain in high demand, the limited availability of properties on the market has been a key factor in this year's subdued volumes.
The low average price point of $1.24 million for industrial assets continues to attract
Source:RWCBayside various buyers. These include owner-occupiers purchasing through their Self-Managed Super Funds (SMSF), cash-rich local investors, and interstate speculators seeking to secure industrial property in this low-vacancy environment. As a result, yields below 5.50% are still common.
Retail properties led the market this year, reflecting a shift in sentiment towards this asset class. Queensland's growing population and limited new supply have reduced the Gross Lettable Area Retail (GLAR) per capita, putting upward pressure on retail occupancy rates, particularly in food, supermarket, services, and even liquor and furniture sectors. Over $65 million in retail transactions occurred across a range of properties including larger showrooms, smaller neighbourhood/convenience centres and strip shops. These offered good value for some buyers, with yields ranging from 5.00% to 8.00%.
The office sector remains challenging but purchase demand has persisted, albeit with higher yield expectations and greater difficulty for vacant assets. Development activity has been limited in recent years due to project feasibility issues. However, buyers continue to acquire sites for land banking or future potential. This year also saw transactions involving diverse “other” assets such as churches, a nursery, and wharf properties.
2023/24 commercial transactions by region
The distribution of sales across the Bayside region has remained relatively consistent year-on-year with Cleveland and its surrounding suburbs recording the greatest number of commercial properties changing hands.
This year's transactions in Cleveland were evenly distributed across asset types with 16 industrial sales, 16 retail sales and 14 office sales. However, there was a higher proportion of development assets compared to other locations. One of the notable sales this year was the recently transacted retail asset at 401-409 Main Road, Wellington Point. This multi-tenanted property sold for $4.85 million at a competitive yield of 5.69%.
Capalaba, a key commercial hub in the region, has seen an improved level of turnover approaching $60 million, representing a 4.52% increase from last year. Sales in Capalaba were dominated by industrial and retail properties, including a significant showroom transaction at 72-74 Redland Bay Road which sold earlier this year for $9 million.
In the Wynnum Manly area, sales were predominantly characterised by smaller industrial properties and retail strips, with numerous opportunities in the sub$1 million price range. The average sale price in this region this year was $1.66 million, boosted by the sale of a medical centre at 85 Clara Street, Wynnum, transacting for $4.8 million.
Source:RWCBayside
SOLD | $4.85 million 401-409 Main Road, Wellington Point
SOLD | $9 million 72-74 Redland Bay Road,
Capalaba
Future Projections
Interest rates and inflation will continue to shape market sentiment and activity significantly. Expect receiver-appointed asset activity to increase.
Industrial properties will remain the most sought-after due to low vacancy rates, high occupancy and limited supply.
Retail properties are likely to maintain strong performance, driven by population growth and limited new construction.
The office sector faces ongoing challenges, with a potential shift towards higher yields and preference for well-located or highquality assets.
Development activity may increase as construction costs stabilise, potentially leading to more mixed-use projects. However, greater economic certainty is needed for this to commence, likely 2025 and beyond.
Alternative asset classes, such as medical facilities, remain highly attractive as investors seek to diversify their portfolios.
The average deal size of around $1.5 million will continue to attract smaller investors, owner-occupiers, and interstate speculators, despite financing costs.
Conclusion
The Bayside commercial property market has demonstrated resilience in the face of post-COVID-19 challenges. While overall transaction volumes have decreased from the peak of 2021/22, the market continues to show signs of stability and ongoing interest from a diverse range of buyer groups.
The region's commercial property landscape has been shaped by several key factors: rising interest rates, cautious investor sentiment, and Queensland's growing population. These elements have led to a more measured approach from both buyers and sellers with a "wait and see" attitude prevalent in the market, which is likely to be maintained given recent speculation on interest rate movements.
Industrial properties, historically the most sought-after asset type, have seen a decline in transaction volume but remain attractive to investors due to their lowprice points and potential for stable returns. Retail properties have surprisingly led the market this year, buoyed by population growth and limited new supply which has increased occupancy rates.
The office sector faces ongoing challenges but continues to attract buyers, albeit with higher yield expectations. The market has also seen interest in alternative and development assets, indicating a diversification of investment strategies.
Geographically, Cleveland and its surroundings continue to dominate sales, while Capalaba has shown improved turnover. The Wynnum/Manly area remains attractive for smaller investments, particularly in industrial and retail strips.
The Bayside commercial property market is likely to remain influenced by broader economic factors, including interest rates and inflation. However, the region's strong population growth, ongoing infrastructure investment, and range of property offerings suggest a foundation for continued resilience and potential growth in the commercial real estate sector.
RWC BAYSIDE
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