With bank rate cuts, a favourable dollar and interest from wealthy Asia-Pacific investors, the Queensland property market is well-positioned to take off within the next few years.
However, the great amount of stock that could become available at the same time has the potential to flood the market and contribute to already-high vacancy rates. As a result, the next 12-24 months will be an interesting time to watch what investors and city planners do with existing B-grade buildings - and how those changes affect the trajectory of Brisbane.
Property market rising
In the last six months, the property market in Queensland has increased at a steady pace, and this trend is likely to continue for the next few years. Although job insecurity could prevent some people from investing in property in the near future, the 3 February interest rate cut of 0.25 per cent by the Reserve Bank of Australia, and the additional reduction anticipated in June, make for favourable purchasing conditions.
As long as foreign demand remains high, clearances for building projects will continue to drive new developments. As BDO's 2014 Progress Congress Highlights explored, the accumulation of funds in the Asia-Pacific region may fuel foreign investment activity in Australia, and we're already observing significant interest in property in Queensland, from commercial and residential space to farmland.
For that reason, new units and buildings will most likely join the market around the same time, presenting great options for buyers and renters. However, this condition has additional implications: In addition to driving down prices, the surplus of new buildings could cause existing, B-grade structures to remain empty. Consequently, city planners and investors will need to think strategically about what to do with those assets.
Addressing high vacancy rates
Over the last few months, the office vacancy rate in Brisbane's CBD has increased steadily, reaching a new record high of 15.6 per cent, according to the Property Council of Australia's February 2015 Office Market Report. Low levels of occupancy are concerning, because empty buildings can turn into liabilities.
“The Brisbane City Council is assessing whether older buildings have the potential for conversion to hotels or serviced apartments.”
This trend is partially enforced by a demand for ‘higher-grade office accommodation’, explained Chris Mountford, Queensland executive director of the Property Council of Australia, and it will only be exacerbated by the surge in building approvals and foreign investment.
As a result, the B-grade buildings that make up 51 per cent of the city's CBD are experiencing a very low occupancy rate of almost one-quarter (23 per cent), which is fuelling a focus on how to convert those assets into more useful options.
"Brisbane must begin to consider potential options for conversion and adaptive reuse of older buildings into uses such as student housing, retirement living and hotel accommodation," Mr Mountford added.
BDO Partner Hung Tran noted that this discussion will be one of the most interesting tasks for the sector going forward, with the potential to transform both the property market and Brisbane itself.
Converting old buildings
Already, some old office building have been converted into residential units, mixed retail and living space, university housing and hotels. The 53-storey Riparian Plaza, for instance, has premium space for offices and retail, along with luxury apartments and multi-level car parking. Other structures, such as the antiquated Lennons Hotel, have been updated to reflect modern specs and features.
Many of these assets require upgraded technology, infrastructure and energy-efficient utilities - which can add to the attractiveness of the final product for potential buyers or renters. However, despite the cost of implementing these elements, converting an old building is often less expensive than tearing down a structure and constructing a new one from scratch. The trick is working out how to implement these newer resources in an older shell, rather than incorporating them while creating an entirely new structure.
Architects and engineers also need to take the floorplan of the existing building into consideration. The layout itself can restrict the possibilities for repositioning. For instance, some floorplans are suited for apartment-style dormitories, whereas others may never suit a residential purpose.
Opportunities for growth and development
Renovating and repositioning an older, lower-grade building may be an attractive investment option; particularly compared to the cost of erecting a new development - but these decisions have the potential for broader transformations throughout the city.
In addition to seeing more mixed residential and commercial spaces, such as Riparian Plaza, Brisbane's options for travellers may improve as these buildings are remodelled.
"The Brisbane City Council is assessing whether older buildings have the potential for conversion to hotels or serviced apartments because there aren't many hotels in the city. Leaders have been trying to increase that market," Mr Hung explained.
As of now, Brisbane's hotels serve mainly a professional consumer base, with travellers coming to Brisbane primarily for business purposes. However, Mr Hung observed that adding to the number of hotels could have an impact on Brisbane's activities and culture, prompting efforts to draw in leisure visitors on weekends as well.
Consequently, the conditions that are driving growth in the Queensland property market have deep implications for the city of Brisbane, with the potential to transform the face of older buildings as well as the nature of the city itself.