The year that was… and what to expect in 2017

For every NSW sector including Office Leasing, Investment services, Industrial, Residential Project Marketing, Site sales, Lifestyle Estates, Real Estate Management, Retail, Valuations, Hotels, Healthcare & Retirement Living and Rural & Agribusiness.

NSW Office Leasing

According to Cameron Williams, National Director, Office Leasing, Sydney CBD at Colliers International, 2016 was the turning point for the Sydney CBD as it tipped in favour of the Landlord as a result of hundreds of tenants being displaced as a result of redevelopment, conversion to another use or the Sydney metro project.

“During the year, B grade core rents for suites up to 500sqm experienced double digit face rental growth whilst incentive levels dropped to average around 12 to 15% of gross lease value.

“The premium core CBD market responded to the demand by subdividing floors and in some buildings by providing speculative fit-outs. Competition for small well located core secondary tenancies sub 500sqm and sub $1,000/sqm pa gross is intense.

“We expect the market to tighten further in 2017 as tenants from 71 Macquarie Street, 5 Elizabeth Street and 50 Bridge Street are forced into the market.

Mr Williams went on to say that vacancy in Barangaroo is tempering rental growth in the prime market particularly for larger tenants however we expect this dynamic to change in favour of Landlords as commitments fall into place during the first half of 2017

“The financial gap between renewal deals and new lease transactions is widening as landlords leverage off the tightening market. With very little significant new office supply coming on line during 2017 and 2018 effective rental growth well above historic averages will continue” he said.

According to Dan Walker, Director in Charge, Sydney North at Colliers International said there is an increase in demand for strata sales stock as SMSF funds continue to look for locations to store their wealth with interest rates so low, in addition to tenants being displaced as above and SME’s wanting to take control and ownership of their operational office/warehouses.

“In 2017 we will continue to see increasing demand from office tenants who cannot find space in the CBD due to very low vacancy, being forced to ‘cross the bridge’ to the North Shore and then on flow into suburban markets like Macquarie Park. North Sydney is seeing the start of a retail revival with an increase in amenity – bars, restaurants and CBD like food offerings through 2017 and into 2018

“Firming up of commercial precincts and resi precincts will crystalise once priority precinct reports come out from State Government bodies for areas like St Leonard’s & Macquarie Park.

NSW Investment Services

According to Matthew Meynell, Head of Investment Services Australia at Colliers International, Commercial investments have continued to see yield compression throughout 2016 supported by true property fundamentals of effective rental growth and increased demand.

“Australian commercial real estate is a key global investment jurisdiction for sophisticated investors with the market being so liquid and transparent.  The Australian market has continued to draw offshore investment with a significant pivot to where the offshore funds are coming from.

“If we look back to 2007 the top three inbound investors were the USA and Canadian pension funds followed by Singapore with a total investment of $14.5 billion and if we look at 2015 the top three inbound investors were China, Singapore and the USA $15.2 billion.   The influence of inbound Asian investment is evident over the last three years when dig deeper into where the inbound investment is coming from 2013 $4.9bn (Asian investors 56%), 2014 $9.5bn (65% Asian investors) 2015 $15bn (75% Asian investors)

“Investment in 2017 will continue to be supported by onshore and offshore demand and we expect to see further yield compression in the vicinity of .25 to  .50 in most major markets and more particularly on the eastern sea board. Due to the demands in the CBD’s and limited stock available we predict potential for greater yield compression in the metro markets as investors move up the risk curve as they chase stronger yields” he said.

NSW Industrial

According to Malcom Tyson, Managing Director, Industrial at Colliers International, Industrial as an asset class continues to attract strong support, from an increasingly broad and diverse capital sources.

“The diversity of interest is largely due to the wide range of industrial property types that are within this asset class. From raw development lands with zoning and development upsides, to fully developed, stabilised industrial parks that sit well within any global property investment portfolio, Australian property has a broad spectrum.

“Throughout 2016, the activity has largely been centred on the major markets of Sydney, Melbourne and Brisbane on the eastern seaboard. This is indicative of the clear correlation between infrastructure investment, and its associated flow on benefits, and the increase in both current demand and future growth prospects for industrial property.

Sydney Industrial was the favoured investment destination for the majority of acquisition mandates in 2016, on account of the massive infrastructure spend planned for the next four years, and the significant activity being created through the displacement of industrial occupiers due to rezoning in some key industrial markets. 

“This growth in demand is playing out in a market which for the first time will not have a seemingly unlimited supply of industrial land. The natural boundaries of the Blue Mountains to the west, and the national parks to the north and south, are now bringing a land constrained industrial market to Sydney”.

Mr Tyson believes this trend is going to continue into 2017, with Sydney industrial assets to be chased hard, by both occupiers and investors.

According to Michael Crombie, National Director, Property Sales & Leasing, South Sydney at Colliers International, The first quarter of 2016 saw a slow start for the South Sydney market, with a real lack of quality stock for sale, yet in the second half, we saw good volumes of stock come up for sale.

“Real estate values rose up to 30% for vacant possession buildings, with the owner occupiers and investors fighting hard to own a piece of real estate. Pre-lease opportunity has become extremely scarce with only one potential site available in 2018 for lessee consideration.

“Investors became more comfortable with yields from 4.5% to 5.5%, with the benefit of rental reversion on market review. Commercial sale stock has become a rare commodity, with continued limited lease stock availability.

“As the market has tightened, incentives have also dropped dramatically, as tenants fight for quality buildings, and opportunity has become extremely limited with tenants having to increase offers above the asking price to secure stock.

“Small to medium scale residential sites form $5- $30 million have continued to be in hot demand, and pricing on GFA continued to climb throughout the year, with only a few large $100 million + sites having come onto the market in late 2016”.

Mr Crombie said auction campaigns become the preferred method of sale, as it became difficult to anticipate expected sale rates. Of the last twelve Auctions in the last quarter of 2016, every single one sold prior to Auction and generally within the first two weeks of advertising, at rates far in excess of vendors expectations.

“We are expecting 2017 to be business as usual with both agents and purchasers having to fight hard for stock. With some recent land sales, we are expecting to see some new strata development, which sill satisfy the small business owners, as these rates have now increased to over $5,000 psm for small units.

“Large scale tenants will continue to consider the Inner West options, however limited opportunity and travel times will always become and consideration when having to move off the home turf.

The development and progression of the M4/M5 Motorway via St Peters, as well as the development of the Waterloo metro station will give hope for a better transport solution.

Mr Crombie strongly believes that South Sydney will continue to be hot property, to date 29.7% of total building stock has been lost in the past 36 months, and there will continue to be a loss of stock in 2017, coupled with occupier displacement, and limited opportunity, and the bound by the CBD, Eastern Suburbs, Sydney Airport and Port botany – it will continue to be a WIN: WIN precinct.

Industrial Valuations

According to Anthony Mylott, National Director, Industrial, Valuation & Advisory Services at Colliers International, in a year dominated by an unprecedented number of portfolio transactions, we expect more normalised trading patterns in 2017, and a weighting towards secondary sectors with market participants seeking yield through positions considered to be slightly up the risk curve.

“Prime and Super Prime assets will remain hotly contested, although we expect market appetite for such assets will not be met with the opportunity to purchase.

“Yield compression will subside somewhat, with expectations of slight tightening for traditional sectors throughout 2017, with growth expected to be at a more benign pace, for good quality assets. 

“Trends to watch for 2017 will be incentive levels in some Brisbane markets, and differing investor sentiment for Melbourne logistic hubs.

NSW Residential - Project Marketing

According to David Chittenden, Director, Project Marketing, Residential at Colliers International, "2016 was a steadying year following the heady market of 2014/15.

“Affordability continued to be driving factor in outlying suburbs for first homebuyers and local investors, driving buyers to consider alternate suburbs and product types to what would otherwise be their first preference. Whilst high quality, boutique apartments projects in inner residential suburbs proved to be appealing to downsizers and empty nesters”

"In 2017, we expect to see greater demand for terrace/ town home product, in the wake of ever-reducing land lot sizes, coupled with the desire to live as close as possible (affordable) to commercial amenity.

“High quality master planned projects in primary locations should also perform well (such as Randwick), particularly where well known quality developers, architects and designers collaborate to provide new precincts within established residential suburbs”.

Selda MacDonald, Director, Project Marketing at Colliers International, said 2016 saw more owner occupiers in the market and less investors, as owner occupiers were more active when it came to comparing old and new stock, paying more attention to detail. Government infrastructure is having a huge impact on perspective purchaser decisions with regards to connectivity and amenity

Demand is still very high for smaller boutique developments in A grade locations which provide good connectivity and amenity. Purchasers are willing to pay a little more for good quality and slightly larger apartments. With interest rates being at an all-time low we finding that we still have a huge number of investors purchasing also.

“2017 will be yet another strong year with developers choosing locations where demand is high and supply is low, predominately where the government is investing in major infrastructure and amenity. Developers will still need to consider their product mix carefully in order to satisfy the perspective purchaser with regards to number of bedrooms, floor plans and so on. Aqualand have done this with The Heysen in Turramurra on Sydney’s North Shore, as have Frasers Property at Wonderland, Central Park in Chippendale” she said.

NSW Residential - Site Sales

James Bellew, National Director, Site Sales, Residential at Colliers International said 2016 saw a tighter financing environment for residential development taking some urgency from the market.

“Despite this, continued demand for residential development sites throughout Sydney continues and prices for sites are holding steady, however there is a reduction in transaction volumes.

“We are seeing a strong push for more boutique projects in quality locations rather than large multi-staged unit projects in outer areas and offshore groups continue to look for both repeat and first time acquisitions, with a marked increase in demand for townhouse and land subdivision sites.

“In 2017, demand will continue from both local and offshore developers and a few specific hot spots to look out for in Sydney will include Mascot, Alexandria and Botany.”

Lifestyle Estates

According to Deborah Cullen, Director, Lifestyle Estates at Colliers International, 2016 was a year of fantastic response from the market place and buyer enquiry is still very strong for Colliers International’s newest specialist team.

“Buyer sentiment is gaining further strength by families wanting a place to retreat to on weekends, holiday time and the work from home space is gaining great popularity. Another strong desire is to engage in local farming communities, grow and understand where real food comes from and live the true Aussie country lifestyle.

“Luxury country homes in fabulously gorgeous regional areas are also becoming a desired asset by the High Net Worth client. Social media shows how engaged they are in this space and sharing it with their friends whilst perhaps also luxury holiday letting on Stayz or Airbnb. They delight in showing their vegetables growing, the farm dog and horses etc.

“Increased buyer groups are also from overseas by companies wishing to secure a space for work colleagues to utilise for personal down time and corporate working spaces.

“Big demand also from owners of communities on outer Sydney metro areas being purchased for development. The semi-rural lifestyle is still being attractive rather than city based living keeping land prices very strong. Badgerys Creek airport development is a great example.

“Hot spots are still the Hunter Valley, The Hawkesbury and North West area and the Southern Highlands and Kangaroo Valley regions and social media and traditional media options are keen to cover any stories and listings in this area.

“2017 is looking to grow even stronger in this space with more balance in everyday life being sought. Colliers’ Lifestyle Estates team are well on the way to being the only specialist team in this space in NSW”.

NSW Real Estate Management

According to Michael Rowlands, National Director, Real Estate Management, at Colliers International, over the last 12 months there has been strong demand for city fringe spaces leading to increased rental growth, driving reduced incentives.

“Tech companies continue to take a space within the fringe market, with the likes of Trip Advisor securing a 27,0000sqm space in Redfern. Australia Post continues to down size, with print media companies such as Readers Digest moving out of Ultimo.

“With the rise of tech companies and increase of millennials in the workforce, there is strong competition for staff. Historically, tech companies have started in small suburban tenancies, however, this increased competition for staff has resulted in a clear focus on location and amenities. Whilst the perception exists that tech companies are looking for warehouse type fitouts, recent trends have shown the importance of acquiring a tenancy whereby the buildings standards meet their technology requirements.

“The Fringe market is full with 2.3 % vacancy, strong rents and low incentives is driving a cross over in fringe assets within the Southern CBD and Mid City A grade stock. There is a movement to and from A-Grade assets in Pyrmont and A-Grade assets in Surry hills to B-Grade mid-town assets.

Whilst the city fringe boasts some of Sydney’s most historic buildings, Mr Rowlands believes that futureproofing your asset is vital to secure major tenants and retain staff, now and in the years ahead.

NSW Retail

According to Daniel Lees, Director of Research for Colliers International “As at the third quarter of 2016, the average spread between Australian regional retail asset yields and risk free rates was 3.69 per cent, or two standard deviations away from long term historical averages (and far higher than what they averaged over the past 20 years).

“In light of this, we expect there is room for retail property yields to compress further, thanks to low interest rates, but we expect that more transactional activity within the retail sector should reprice the market closer to where historical spreads deem these shopping centres should be.

“Australian shopping centre rents across all states and categories grew +0.62% over the year to 3Q16 and over the next 12 months to 3Q17, we expect this growth rate will increase to +2.14% on average” he said.

Regional yields remain tightest in Sydney and Melbourne at averages of 5.5 per cent and 5.63 per cent respectively. Yields in Brisbane and Perth are both averaging 5.75 per cent although the range is slightly wider in Brisbane. Meanwhile Adelaide yields are marginally higher, averaging 5.88 per cent. Given the wide spreads on offer within the sector, we believe that transactional evidence will reprice the market, bringing spreads closer to long term historical averages.

“Looking forward to 2017, we expect that gross face rents within shopping centres will experience growth over the coming 12 months, based on a mix of CPI linked contractual increases and our forecasts for increasing retail demand. Our outlook for further rental growth is supported by institutional commentary during the most recent reporting season, where landlords including Charter Hall Retail REIT, Mirvac, Shopping Centres Australia, GPT and Vicinity Centres noticed positive releasing spreads in a range of 0.5 per cent to 7.5 per cent” said Mr Lees.

Mr Lees also said large format retail supply has been dominated by the growth in hardware sector with both Masters and Bunnings driving new supply completions over the past few years, but this has slowed in 2016 with the closure of Masters. New supply for 2016 is 164,500sqm nationally with 2017 currently forecast at approximately 378,155sqm.

“Household goods retail sales remain strong and there is a strong correlation with a higher churn rate for residential property and retail trade growth in household goods. Although there is a slowing in the churn rate in residential transactions, there is a pick up in the amount of renovation activity within key markets. This is likely to continue to support further growth in the household goods over the next 12 months”.


According to Dwight Hillier, Managing Director, Valuation & Advisory Services at Colliers International, for the key CBD markets of Sydney and Melbourne, we saw the continuation of material yield compression, combined with strong effective rental growth in 2016. Brisbane remained challenged in the short to medium term by high vacancy levels, whilst Perth continued to decline, with extremely weak leasing fundamentals and overall investment dynamics.

“In the main, the disappointing part was Sydney’s lack of overall transactional activity. It was not for the want of trying by a broad cross section of potential acquisition capital, but rather an unwillingness by landlords to transact in an extremely tight market. Landlord concerns were two fold, giving away the opportunity for strong rental growth, and the simplicity of the fact that reinvesting the capital back into the market or other opportunities was difficult. Melbourne provided the greatest deal flow across the board, a market with less supply constraints and hence a shorter window and associated certainty around effective rental growth.

Prediction for 2017: “In terms of yields, for prime stock we forecast further compression for Sydney at 25bp and Melbourne at 12.5bp. We are holding Brisbane flat, and Perth expanding further by 25bp.

“In 2017 rental growth will continue in Sydney, again with strong B grade performance over Q1 and Q2. Sydney Premium grade vacancy will continue to decline with further effective rental growth, cascading down into the A grade sector. Melbourne’s rental growth will continue, but at a slower pace as new supply becomes more certain. Brisbane is forecast to remain flat, and Perth with further decline of effective rentals.

2017 Point of Interest: “For the CBD’s with forecast strong rental growth (Sydney and Melbourne), we forecast that whilst total returns (IRR’s) are forecast to rise, these will most likely be tempered by expanding terminal capitalisation rates” he said.


The rise in Chinese arrivals is boosting tourism industry, according to Gus Moors, Head of Hotels Australia at Colliers International as international arrivals to Australia continue to increase with the largest growth originating from China. 

“Chinese visitor arrivals have increased exponentially from 100,000 in the year 2000, to over one million for the Year Ending June 2016.  International visitor arrivals data for Year Ending June 2016 show that China continues to be Australia’s largest source market in terms of visitor nights and visitor expenditure and is Australia’s fastest growing source market, with growth of over 23% over the past 12 months.  Importantly, there has been a move away from traditional tour groups and instead more individual travel from the rapidly emerging middle class in China.

"The Chinese have also been very active in acquiring Australian hotel assets, purchasing a total of A$829 million hotel assets to November 2016, representing 37% of the total transaction volume.  The most significant transaction by Chinese investors in 2016 was the A$700 million sale of “The Ribbon” hotel in Sydney’s Darling Harbour which is proposed to include a W branded hotel.    China, which up until 2008 had only invested A$7.6 million in Australian hotels, has acquired A$2.7 billion of hotel assets since 2009. 

“Looking forward, an increase in the supply pipeline is expected across all Australian cities through to 2022.  This new supply is considered to be an overall positive for cities with strong overall market fundamentals such as Sydney and Melbourne and will further help to revitalise these cities.  Increasing levels of proposed new supply in markets such as Perth and Brisbane however is anticipated to be challenging as demand has fallen off from the peak of the mining boom.  Although not all likely developments are likely to proceed, there will undoubtedly be pressure on existing inventory in these cities to refurbish in order to remain competitive”.

Hotel Valuations

According to Michael Thomson, National Director, Valuation Hotels, Asia Pacific at Colliers International, we have tracked a significant decline in hotel sales in 2016 i.e. $3.8billion in comparison to 2015 $2.25billion (year to November 2016) which is explained by several large 5 Star hotels which changed hands in 2015 and a reduction in buying opportunities rather than a decline in buyer appetite. 

“Capitalisation rates have continued to tighten and we are now seeing a major supply growth cycle which is across the country rather than restricted to any single State Capital.

In 2017, we will continue to see Australia as a fragmented hotel market with further growth opportunities in Sydney but Perth and Brisbane will still be challenged by supply increasing at a greater rate than demand.

“China will be the most important growing market for tourists into Australia and overseas buyers particularly from China and Singapore will continue to dominate as purchasers of major CBD Hotel assets.

“Counter cyclical buying opportunities will present themselves in Perth and Brisbane and the traditional tourism destinations of the Gold Coast and Far North Queensland will continue to flourish.

“The supply cycle across the country will provide an opportunity for the launch of new brands and expansion of established brands however operators will have to be increasingly competitive in their proposed management agreements with owners placing an emphasis on key money, incentive fees and the ability to sell with vacant possession”.

Healthcare & Retirement Living

According to Leon Hadchiti, Associate Director | Valuation, Healthcare & Retirement Living for Colliers International, in 2016, Residential Aged Care Facilities (RACF) saw a decline in the volume of transactions from the peak of 2014/15, as the larger listed players entered a period of consolidation after the Federal Government announced changes to the Aged Care Funding Instrument (ACFI) in the 2016 Budget.

“All listed players share prices reduced off the back of this Government announcement with the last notable transaction by one of the listed players being the Regis acquisition of the Masonic portfolio in March.

Looking forward to 2017, greenfield/brownfield RACF development will continue, however the pipeline will still to be hampered by the Government regulating bed licences.

Home care:

“With the Federal Government’s deregulation of Home Care in February 2017, we anticipate more integrated business lines offering a continuum of care (independent living through to at-home care and then into aged care).This is likely to result in an increased focus on JV arrangements between retirement and aged care operators allowing residents living independently to receive care at home and enter into aged care at a later stage.

Retirement Villages (RVs):

Mr Hadchiti said there has been a recent increase in market activity, with Blue Care completing recent acquisitions in QLD (comprising around 1,500 units), one of the largest transactions in recent times, which also represented a tightening of discount rates from other recent transactions.

“The RV sector is poised for growth in 2017. The vertical model is in full swing, especially with an integrated independent living/aged care piece, as retirees look to remain in and around metropolitan areas for better access to medical services. Examples include Mark Moran at Vaucluse and Greengate at Maroubra. Also, Brisbane Council is offering reduced infrastructure charges for RV & RACF developments encouraging growth in the sector”.

Manufactured Housing Estates (MHEs) and Tourist Parks:

“Recent sales still show yield compression, which is expected to be reflected in current valuations for the listed and unlisted investors”. We are seeing an increase in listed and private equity interest, particularly from the US and Singapore, looking to expand into the Australian market.

“In 2017, we anticipate continued growth in MHE space as Hometown Australia and other interested parties continue to enter the market. All eyes are on the first acquisition for Hometown Australia, while we should also see increased activity by Aspen Group as they seek to expand their tourism portfolio. There may also be a push towards more greenfield acquisitions by investment groups.”

NSW Rural & Agribusiness

According to Richard Royle – Director Rural & Agribusiness NSW at Colliers International, institutional funds and private wealthy Chinese buyers have begun to shift from a research phase in 2016 to deployment of capital phase in 2017.

“Neighbour to neighbour sales have continued with buyers looking to accommodate extended families and a renewed optimism about the future profitability in Australian agricultural businesses.

“Lifestyle properties with good infrastructure, and especially ones producing a profit, have continued to gather pace in 2016 with strong sales expected to continue.

“There has been strong off market activity with cashed up buyers eager to speak with potential sellers matching their search criteria. The low volume of on market assets in 2016 has driven the off market activity. Financial institutions have supported buyers in all price brackets which has encouraged new buyers to step into the rural market for the first time and for existing families to grow their land holdings”

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