Friday, 3 September 2010

Cairns property is "bottom of market"

Cairns property cycle is at the bottom of market, according to Herron Todd White's latest report.

The rental vacancy is is slowly increasing, however there's an oversupply of available property relative to demand, and new house construction and house sales are both recorded as "steady". The retail property market is showing a declining trend.

As Rick Carr told the Cairns Chamber of Commerce luncheon last week, don't expect much change over the next 12 months.

  • "The Cairns retail market had been strengthening slowly but steadily for a number of years. However while this trend started fading out at the start of 2008 and continued to fade during 2009, we now perceive the Cairns retail market to be at or near the bottom of the cycle. It must be also said that retail property sales in Cairns are extremely sporadic, and there have been no retail properties of significance changing hands for some time.

    Most sales involving retail property have been of mixed use retail/office buildings or tenant buyouts of single premises. Despite the economic downturn that has presumably led to a reduction in consumer and tourism spending, vacancy levels in the prime retail sector have remained stable, with high exposure CBD space near fully occupied.

    However there are vacancies in lesser exposure locations and/or on the CBD fringe. Rents as a general rule have been static, showing ranges of $600 to $1500 per sqm per annum for prime CBD space, and $1000 to $2500 per square metre per annum in key tourist precincts such as the Cairns Esplanade.

    Yields for commercial properties in general in Cairns have eased back by about 10% from the record low levels observed at the start of 2008. Though true retail sales are rare in the Cairns market, we believe yields for retail premises have been steady in the 7.5% to 8.5% range, compared to the 6.75% to 7.25% range that prevailed at the start of 2008.


    The Cairns market continues to bounce along the bottom of the cycle with very little distinction between locations and sectors. There are glimmers of activity starting to show through in the traditional lead suburbs but it is not yet sufficiently wide spread for us to call a general recovery.

    Stronger tourist numbers this season are infusing extra activity and jobs into the local economy, and more importantly extra confidence into the market, but progress is slow. The light is on at the end of the tunnel, but it is a long tunnel and its slow going getting there.

    There is also a generous supply of new property on the market at present relative to current rates of consumption, but we do not believe this to indicate a fundamental oversupply, for the following reasons:

    * The present level of supply is below that prevailing under normal market conditions in Cairns, and is progressively reducing as the rate of consumption exceeds the slow rate of new construction and development,

    * The current ratio of stock to sales is high only because of the abnormally low rates of sale. As sales rates recover along with the economy in general, the stock to sales ratios should revert quickly to more normal levels,
    * Prices have by no means collapsed, and;
    * Once demand does recover as will inevitably happen as the economy continues to recover, there is the possibility that shortages will start to materialise due to the paucity of new construction and development.

    Rental vacancy rates are starting to creep up again, largely we suspect because the usual peak season population influx this year has not been as strong as in previous years due to the perceived state of the economy. A further influence has been the carry over effects of last year’s First home Buyer scheme, which is now taking a number of people out of the rental market to become home owners. Our latest Herron Todd White Rent Roll survey shows July 2010 vacancy reading (in year round average trend terms) of 4.2% for houses, 5.8% for apartments and 5.1% overall.

    With very little extra supply coming into the rental pool as a result of the slowdown in new housing construction, we do not believe the present level of vacancies to be a cause for concern. However, it does mean that rents are likely to remain steady to slightly declining over the near term.
  • MORE INFO Herron Todd White

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