Logan Central Master Plan Market Analysis

Transcription

1 Logan Central Master Plan Market Analysis March 2010

2 xdisclai mer x DISCLAIMER This report is prepared on the instructions of the party to whom or which it is addressed and is thus not suitable for use other than by that party. As the report involves future forecasts, it can be affected by a number of unforeseen variables. It represents for the party to whom or which it is addressed the best estimates of Urbis Pty Ltd, but no assurance is able to be given by Urbis Pty Ltd that the forecasts will be achieved. URBIS STAFF RESPONSIBLE FOR THIS REPORT WERE: Director Associate Director Consultant Job Code Report Number Malcolm Aikman Mark Courtney Nisha Rawal BPE0295 B10-A Copyright Urbis Pty Ltd ABN All Rights Reserved. No material may be reproduced without prior permission. While we have tried to ensure the accuracy of the information in this publication, the Publisher accepts no responsibility or liability for any errors, omissions or resultant consequences including any loss or damage arising from reliance in information in this publication. URBIS Australia Asia Middle East

3 TABLE OF CONTENTS Introduction...i 1.1 Background...i 1.2 Methodology...i 1.3 Report Structure... ii 2 Residential, Retail and Commercial Market Analysis Residential Analysis Sales Analysis Rental Market Residential Construction Costs Commerciality for Residential Development Retail Analysis Market Characteristics Construction Costs Commerciality of Retail Development Commercial Office Analysis Market Characteristics Strengths and Weaknesses Type of Tenants Construction Costs Commerciality of Office Development Summary of Key Findings Residential Retail Commercial...17 Rpt-BPE Logan Central Master Plan- Market Analysis- Final

4 INTRODUCTION Introduction Logan City Council (LCC) has engaged Urbis to provide advice on the suitable quantity, quality and timing of future residential, commercial and retail development within the Logan Central Master Plan area. 1.1 Background The Council is in the process of developing a draft master plan for the area referred to as Logan Central. To inform that process, LCC is seeking the above advice. It is also looking for guidance on the opportunities within Logan Central and how they will affect the future of the Wembley Road shopping centre precinct and its relationship with the town centre. The area has been identified by LCC as a major revitalisation opportunity over a 20 year time frame. The centre has a number of existing activity generators including Woodridge train station, art gallery, the Council offices and Wembley Road. 1.2 Methodology In consideration of the LCC s requirements, the work has been separated into four stages. These include: Residential, Commercial and Retail Market Analysis Housing Strategy Retail and Commercial Economic Need and Demand Assessment Development Appraisal This report represents the first stage of this work - Residential, Commercial and Retail Market Analysis. It will inform Logan City Council on the current construction costs, achievable sale and rental returns and overall commerciality of future residential, commercial and retail development within Logan Central. It is important to note that the aim of this study is to ascertain the type of development that is commercially viable at this point in time under the current market conditions and existing land use profile. A key output of this work is to provide an indication of the type of residential, commercial and retail development considered appropriate for the study under current market conditions. Further stages of analysis in relation to the Logan Central Master Plan will investigate the ultimate land use potential taking into consideration a range of additional factors that can influence future land use development outcomes. These factors include government policies such as government office decentralisation, and master planning which can raise the development potential of precincts and areas through increased amenity, density, and introduction of land use attractors. Such factors can influence the commercial returns of land use development within Logan Central to allow higher quality and greater density development than what is achievable under the current market conditions. The following section presents the separate tasks that comprise the overall methodology for this first stage. Residential Market Analysis Provide an estimate of residential construction costs for an appropriate standard of multi-level residential development. Provide a current rental and sale price assessment of housing stock, benchmarked against the Brisbane average. Review the historic rental and sale price growth trends for houses and apartments in the local area. Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page i

5 INTRODUCTION Determine the commerciality of residential development and provide advice regarding the most suitable form of development (i.e. number of storeys and housing type). Retail Market Analysis Provide an estimate of the retail construction costs for an appropriate standard of retail premises within Logan Central. Research the current retail rents and yields in the area. Ascertain commerciality of future retail development. Commercial Market Analysis Provide an estimate of commercial construction costs for an appropriate standard of commercial premises within the Master Plan area. Research the current commercial rents and yields in the area. Consider the potential for larger offices to relocate to Logan Central and the existing stock to accommodate future demand. Review the strengths and weaknesses Logan Central offers as a commercial precinct. Establish the size and type of office tenant that would be attracted to Logan Central commercial premises. Ascertain the commerciality of future commercial development. 1.3 Report Structure Following from this introduction, the report progresses through the following chapters Chapter 2 Residential, Retail and Commercial Market Analysis Chapter 3 Summary of Key Findings Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page ii

6 2 Residential, Retail and Commercial Market Analysis The following section provides analysis of the residential, retail and commercial markets at present and historically within the Brisbane and Logan LGA. 2.1 Residential Analysis The purpose of this section is to outline the current and historic market movement of house prices and rentals within Logan Central and surrounding suburbs to provide a broad analysis of the residential markets. Logan Central and Woodridge are significant residential areas within Logan City. The majority of residential development within these suburbs is in the form of houses, townhouses and two-storey walk up unit complexes (6-pack) Sales Analysis Historic median house and unit data from December quarter 2004 to 2009 has been obtained from the REIQ for the Logan LGA. This has been benchmarked against the Brisbane LGA. House Accommodation The following table shows the median house price data sourced from REIQ. Median House Prices - December Quarter Brisbane LGA Logan LGA Logan Central and Woodridge QTR Number of Sales Median Sale Price % Change in Median Price Number of Sales Median Sale Price % Change in Median Price Number Median Sale of Sales Price % Change in Median Price Dec Qtr ,880 $352, % 648 $236, % 38 $172,016 - Dec Qtr ,473 $365, % 581 $253, % 59 $182, % Dec Qtr ,969 $395, % 805 $272, % 58 $206, % Dec Qtr ,670 $489, % 571 $340, % 41 $282, % Dec Qtr ,248 $470, % 755 $334, % 37 $261, % Dec Qtr ,789 $535, % 655 $362, % 37 $270, % 1. Note: For consistency purposes, figures noted above are for the December quarter only for both the number of sales and median sale prices. Source : REIQ; Urbis Key findings include: Sales over the six year study period (Dec qtr ) have shown an overall increase in median house price of 19.17% for the combined areas of Logan Central and Woodridge and 52.2% for the Logan LGA. This is consistent with the Brisbane LGA which achieved an increase of 52%. The number of house sales peaked in the December quarter 2006 for both Local Government Area s with sales in the combined areas of Logan Central and Woodridge remaining stable from the corresponding quarter in The number of sales registered in Logan for this quarter increased by 38.5% (from 581 to 805 sales) from the corresponding quarter in In relation to Brisbane, although sales volume peaked over this same period, the increase in sales numbers was not as high as Logan, with the Brisbane LGA achieving a 14.3% increase in sales. The increase in sales is reflective of the buoyant market conditions over this period. Although sales volumes decreased for the December quarter 2007 from the corresponding quarter in 2006 (29% for Logan and 32.7% for Brisbane), the median house price increased significantly over this time. The Logan LGA experienced a 25% increase over the quarter to $340,000, with Logan Central and Woodridge experiencing a 33.3% increase from the corresponding quarter in 2006 (increase from $206,966 to $275,902). This is above the Brisbane LGA which recorded a Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 3

7 23.9% increase over the quarter to $489,500. This growth experienced over this period is considered to reflect increased demand and a general shortage of housing product within the market. The December quarter 2008, was the only period where median house prices declined. This is the result of the subdued market conditions and the effects of the global financial crisis. It is notable that sales volumes increased at high levels at this time. For Logan this is considered to reflect the impact of the First Home Owners Grant extension. The latest figures released by REIQ show that the median house price in the Brisbane LGA broke through $500,000 to reach $535,000 over December quarter This median house price is 47.8% higher than the Logan LGA median house price ($362,000) and is 97.6% above the combined areas of Logan Central and Woodridge. Unit Accommodation Unit accommodation within the Logan LGA generally comprises two to three storey walk-up accommodation. Median sale prices for two bedroom units are presented in the following table with the key findings below: Median Units Prices - Decem ber Q uarter Brisbane LGA Logan LGA QTR Number of Sales Median Sale Price % Change in Median Price Number of Sales Median Sale Price % Change in Median Price Dec Q tr $250, % 117 $152, % Dec Q tr ,663 $266, % 113 $170, % Dec Q tr ,862 $310, % 216 $179, % Dec Q tr ,578 $374, % 149 $245, % Dec Q tr ,298 $370, % 151 $250, % Dec Q tr ,488 $400, % 159 $275, % 1. Note: For consistency purposes, figures noted above are for the December quarter only for both the number of sales and median sale prices. 2. Note: median unit prices for the areas of Logan Central and Woodridge are not available in a consistent form to other data used. Source : REIQ; Urbis Median unit prices experienced the largest growth in the December quarter 2007, achieving $245,000 in the Logan LGA and $374,500 in the Brisbane LGA. This showed an increase for Logan and Brisbane LGA of 36.3% and 20.8% respectively. Unit sales have seen a similar movement to that of houses for both LGA s with sales volumes peaking in the December quarter Overall median unit prices in the Logan LGA at present are 45% below the Brisbane LGA. For both the Brisbane and Logan LGA s, the median unit price represents at or about 75% of median house prices for these regions representing a strong unit market. Overall, growth over the study period for these two products has been consistently higher for units compared to houses in both regions. This may be reflective of unit accommodation posing a more affordable option to houses Rental Market In terms of three bedroom houses currently being rented within the area, rentals in the main are showing a range from $260 - $310 per week for a typical three-bedroom house for the area. Overall the Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 4

8 rental market remains strong and competitive in both regions. Logan overall however, has a lower median weekly rental to that of the Brisbane LGA. House Accommodation Median weekly rental information has been sourced from the REIQ and are tabled below with key findings following: Median Weekly Renta ls - 3 Bedroom Dwellings Logan Central/Woodridge Logan City Council Area Brisbane City Council Area Qtr Median Rental % change Median Rental % change Median Rental % change Dec Qtr $ % $ % $ % Dec Qtr $ % $ % $ % Dec Qtr $ % $ % $ % Dec Qtr $ % $ % $ % Dec Qtr $ % $ % $ % Dec Qtr $ % $ % $ % 1. Note: For consistency purposes, figures noted above are for the December quarter only for both the number of sales and median sale prices. Source : REIQ; Urbis Median weekly rentals have increased throughout the study period. In the areas shown above, growth in median weekly rentals was the highest in the December quarter 2007 for Logan and December quarter 2006 for Brisbane. As at the December quarter 2009, the median weekly rental for the Logan City Council Area of $320 per week is 15.6% below the Brisbane City Council Area of $370 per week. Further, the median rental for the combined areas of Logan Central and Woodridge are 23.3% below the Brisbane. Although the median rental is lower, the combined areas of Logan Central and Woodridge ($300/week) have experienced a higher level of growth to that of the Logan City Council Area as a whole (with the exception of the current period). Unit Accommodation Median weekly rentals for two bedroom units have been sourced and tabled following with the key findings below: Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 5

9 Median Weekly Renta ls - 2 Bedroom Units Qtr Median Rental % change Median Rental % change Median Rental % change Dec Qtr 2004 $ % $ % $ % Dec Qtr 2005 $ % $ % $ % Dec Qtr 2006 $ % $ % $ % Dec Qtr 2007 $ % $ % $ % Dec Qtr 2008 $ % $ % $ % Dec Qtr 2009 $ % $ % $ % 1. Note: For consistency purposes, figures noted above are for the December quarter only for both the number of sales and median sale prices. Source : REIQ; Urbis Brisbane City Council Area Logan City Council Area Logan Central/Woodridge In response to the competitive rental market conditions (potentially associated with an undersupply of rental properties), median weekly rentals have also increased during 2004 to Median rentals increased in the December quarter 2008 by 12.9% in Brisbane to $355, 15.0% in Logan to $230 per week and by 12.8% to $220 per week for the combined areas of Logan Central and Woodridge. The latest median weekly rental (Dec qtr 2009) for units in the Logan City Council Area of $240 per week is 48% below the Brisbane median ($355 per week) with the combined areas of Logan Central and Woodridge being 54% below the Brisbane median at $230 per week, for the same period. Overall, based on the latest December quarter 2009 figures, median rentals have achieved higher growth for units compared to houses. Unit accommodation is seen as an affordable alternative to housing accommodation. For the Logan region median weekly rentals grew by 4.3% for units compared to 3.2% for houses. Similarly for the combined areas of Logan Central and Woodridge, median weekly rentals remained steady over the quarter with weekly rentals for units increasing by 4.5%. This is an improvement to Brisbane which achieved an increase in median rents for this quarter of 1.4% for houses and 2.8% for units. Summary Over 2006 and 2007 the Logan and Brisbane residential property markets achieved strong growth in median price. The increasing population and general shortage of supply are considered to have underpinned growth in median price. The shortage of supply has also led to an increasingly competitive rental market with steady growth being seen in median weekly rentals. The effects of the global financial crisis on the residential market appear to have passed through the Brisbane and Logan markets with late 2009 figures showing signs of recovery within the residential market Residential Construction Costs The purpose of this component is to provide a high level assessment of construction costs. Indicative residential costs for a typical multi storey residential unit complex providing a basic standard of accommodation have been sourced from Rawlinsons Construction Handbook The costs listed below provide a range on a rate per square metre basis and per apartment basis for construction costs. These costs include allowances for: preliminaries, substructure, superstructure, finishes, fittings, services, external services and contingency. Note, however these costs are purely construction related and therefore do not include any costs associated with professional fees, finance costs and any allowances for land and holding costs. The figures produced on this basis are presented in the following table: Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 6

10 Residential Construction Costs Construction Cost Range Rate/m² Apartments - maximum three stories, one or two bedrooms units Basic standard fini sh $1,480 - $1,595 Plus Balcony $390 - $685 Total $1,870 - $2,280 Apartments - multi-storey (High Density), one or two bedroom units, lift 1 Basic standard fini sh $1,740 - $1,875 Plus Balcony $390 - $685 Total $2,130 - $2, Costs are for high density above three storeys and may vary as height increases 2. Costs noted above are for Brisbane Source : Rawlinsons Construction Handbook 2010; Urbis Commerciality for Residential Development The costs of construction for low, medium and high rise unit developments is a significant factor in the determination of the most appropriate building height. In constructing residential product, it is essential that the development corresponds with the surrounding market in terms of height, quantity and standard of accommodation. Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 7

11 Construction Cost and Price Points - Three & Five Storey Residential Unit Developments Proponent Unit Three Storey Five Storey Floorspace Unit Floorspace m² 715 2,757 Internal Unit Floorspace m² External Unit Floorspace m² 7 9 Common Area Floorspace m² Total Floorspace per unit (incl. common area) m² Units m² 8 24 Total Carparks Carparks Land Cost Resulting Plot Ratio Land Area m ,000 Land Cost $ $312,735 $700,000 Construction Cost 1 Total Internal Cost $ $1,0 23,071 $4,615,913 Total Balcony Cost $ $30,401 $ 116,675 Total Car Parking Cost $ $97,325 $ 900,000 Civil $ $50,000 $50,000 Lan dscaping $ $15,000 $30,000 Infrastructure Charges $ $20,000 $ 480,000 Demolition Costs/Site Prep $ $80,418 $ 180,000 Total Construc tion Cost $ $1,316,214 $6,372,587 Professional Fees $ $40,724 $ 176,815 Tot al Developm ent Cost $ $1,6 69,673 $7,249,402 Holding Costs & Selling Costs $ $162,79 3 $7 06,817 Developer 20% $ $366,49 3 $1,591,244 TOTAL COST $ $2,1 98,960 $9,547,463 Average Price Point $ $274,87 0 $3 97, Brisbane building and pricing index Source : Rawlinsons Construction Handbook 2010; Urbis Assumptions adopted in above analysis includes: All costs and figures produced in the above table is in today s dollars. Land cost is based on sales of residential development sites. Unit areas have been based on market averages for basic standard of one and two bedroom unit accommodation. Construction costs have been obtained from Rawlinsons Construction Handbook Professional Fees have been applied at 2.5% of Total Construction costs (incl land component). Analysis allows for a Developer s profit of 20%. The costings and assumptions adopted as part of this assessment provide for a similar type of basic unit accommodation to that present within the Local Central Master Plan area. Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 8

12 The above analysis shows that a three storey development can be developed to deliver a unit at a price point consistent with the current median price point. In contrast a five storey development produces units at a price point considerably higher than the median unit price ($397,000). Floor areas for the two development options, being a three storey and five storey residential unit building, have been varied as it is considered that a three storey building would include primarily one and two bedroom accommodation whereas a five storey development would also incorporate three bedroom units. Therefore the average floor area would increase overall. Assuming a five storey development with the same floor area as the three storey being 89m² (including common area) this varies the average price point from $397,000 to at or about $334,000. Although this is a lower average price point it is still well above the median unit price for the area ($275,000). Based on the above analysis a low-rise, three storey unit building is considered the most commercial and financially viable development for the area under current market conditions. Developing this type of product promotes the highest use of the land and provides for a medium to high density product. 2.2 Retail Analysis The following section outlines the market characteristics present within the Logan Central retail market Market Characteristics The success of retail facilities is heavily dependent on location, access and exposure. Within Logan Central, the majority of retail premises are concentrated along Wembley and Station Roads. These are the main arterial roads through the area. Retail businesses along these roads include convenience type strip retail. A number of the strip retail centres appear tired and in need of investment. Anecdotal evidence from local estate agents, confirms that these older centres are becoming increasingly difficult to occupy. The following sections outline the key findings from market research and agent advice regarding units and yields. Rents Attached strip retail tenancies within the area are broadly achieving rentals from $300/sq.m - $400/sq.m (gross) for tenancies ranging in size from 100sq.m 300sq.m. For smaller tenancy areas ranging in size from 50sq.m to 100sq.m, rentals from $500/sq.m - $600/sq.m (gross) are being achieved. The above rental ranges reflects differences in size, quality of premises, intended use, and location. Yields At present there is a higher demand for properties within a $1million -$4million value range compared to properties at a value of $5million and greater. Broadly, retail properties within this area are achieving estimated yield ranges of between 8.00% %. The lower end of this range is indicative of newer product in prominent locations. Conversely the higher yield range is representative of older product in secondary locations. Newly developed neighbourhood centres with a supermarket anchor are achieving yields as low as 7.5% at present. It is notable that centres that have a development upside or future expansion potential are showing tighter yields at an estimated 8% Construction Costs Indicative retail construction costs for single level convenience strip retail (4-6 tenancies) and for an enclosed neighbourhood supermarket centre have been sourced from Rawlinsons Construction Handbook The costs listed below are provided on a rate per square metre basis for retail facilities and also allows for a rate per car park. Based on planning requirements in relation to parking, costings have been provided for both open air parking, for smaller retail facilities, and basement car parking for larger enclosed centre requirements. On the basis of our preliminary assessment of the area, this type of Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 9

13 retailing is considered the most appropriate in line with existing retail facilities as well as for potential redevelopment opportunities. The following table outlines the figures produced on this basis as follows: Retail Construction Costs Suburban Standard shell Neighbourhood construction including Shops - ' shop Strip fronts, Retail' plasterboard ceilings, electrical service to board, cold water supply to fixture point only and drainage. No fittings, hot Const ruction Cost Ra nge Rate/m² Single level $650 - $700 Parking Open parking areas - bitumen paving, stormwater dr ainage, lighting and basic landscaping (Rate/park) $3,025 - $3,265 Shopping Centre - Fully Enclosed Mal l Centre $3,290 - $3,550 Parking Open Air $3,025 - $3,265 Basement Level 1 (Rate/park) $45, Costs noted above are for Brisbane Source : Rawlinsons Construction Handbook 2010; Urbis The above table shows a range from approximately $650/sq.m to $700/sq.m for typical suburban single level strip retail premises and $3,290/sq.m to $3,550/sq.m for a fully enclosed centre. These costs are purely construction related and therefore do not include any costs associated with professional fees, finance costs and any allowances for land and holding costs Commerciality of Retail Development The purpose of this section is to highlight the type of retail land use which is the most commercially viable for the study area. To ascertain this, a high level assessment of the costs and returns achievable for strip retail compared to an enclosed neighbourhood centre has been undertaken. The following table presents our findings of construction costs and potential returns achievable for each of these forms of development. Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 10

14 Construction Cost a nd Potential Returns - Retail Developm ent Proponent Unit Strip Ret ail Enclosed Centre Floorspace Gross Floor Area m² 500 4,500 Total Carparks Carp arks Land Cost Resulting Plot Ratio Land Cost $ $360,000 $2,400,000 Construction Cost Total Retail Cost $ $340,875 $15,543,900 Total Car Parking Cost $ $24,000 $6,593,220 Civil $ $40,000 $100,000 Infr astructure Charges $ $50,000 $120,000 Demolition Costs/Site Prep $ $45,000 $441,000 Total Construc tion Cost $ $499,875 $22,798,120 Professional Fees $ $21,497 $629,953 Tot al Developm ent Cost $ $881,372 $25,828,073 Holding Costs & Selling Costs $ $88,137 $2,582,807 TOTAL COST $ $969,509 $28,410,880 Rental Income $262,500 $1,485,000 Capitalised Value % $2,916,667 $16,971,429 Development Profit $ $1,947,158 -$11,439,452 Source : Rawlinsons Construction Handbook 2010; Urbis As this is a high level assessment only, it does not have regard to leasing and letting up allowances, vacancies and any incentives that may form part of lease agreements. The above analysis suggests that strip convenience retail is the most commercially viable option for the study area at present. This type of retailing is consistent with a considerable amount of existing retail facilities located within the area. The development of a larger enclosed centre which would accommodate a supermarket, specialties and require a basement car parking component, does not reflect a positive return. The inclusion of time periods in this assessment may vary the overall outcome of the enclosed mall centre as seen in the above table. It is considered that development of the overall precinct as part of the Master Plan would create further investment opportunities and attract a wider variety of specialty retailers to the area. Moreover the development of commercial and residential accommodation within the area would compliment and assist in activating the study area. 2.3 Commercial Office Analysis The following section provides detail on indicative rentals and yields for commercial office accommodation in the study area. It also presents the characteristics, strengths, weaknesses and Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 11

15 commerciality of commercial office development in the study area. Data for this analysis has been obtained from local real estate agents, Urbis industry knowledge, and Urbis valuation records Market Characteristics Typical commercial office accommodation within Logan City is in the form of two to three storey buildings located along the major arterial roads. Desktop research in addition to evidence informed anecdotally through agents has been obtained relating to the characteristics inherent to the commercial market within Logan Central. The majority of tenants within commercial premises are Government related. In addition the area is attractive to local small businesses and firms that are not site specific and do not require clients on site. Rents Rentals for standard office accommodation range from $250/sq.m to $350/sq.m (gross) for areas from 200sq.m to 800sq.m, for smaller commercial areas of 50sq.m to 100sq.m rents generally range from $400/sq.m to $500/sq.m. Rentals achievable may vary due to quality, lease provisions and location. Yields In the main market advice suggests that commercial property is tightly held within the area. Recent transactions and advice suggests yields are within a range of 8.00% to 9.50%. Variations in yields reflect the level of occupancy, quality of development and exposure attached to the premises Strengths and Weaknesses The following section outlines the study areas strengths and weaknesses relevant to the local commercial property market for the study area. The business/commercial precinct within Logan Central has varying strengths and weaknesses which can potentially be transformed into opportunities in the redevelopment of the precinct as part of the Master Plan. These include the following: Strengths Logan Central is supported by road and rail networks. It is close to the freeway, major arterials, Woodridge Train Station and Bus interchange in the centre. The area is surrounded by residential uses providing opportunities for people to live and work within Logan City. The area has good linkages between different land uses with future potential for further integration of uses. The commercial precinct provides a more affordable alternative to CBD, fringe CBD or other established office/business park accommodation. This aspect appeals to local/small businesses, businesses that are not site specific and those that may prefer stand alone premises. Weaknesses Stigma/image attached to the area. This may deter potential commercial tenants from relocating to the area. Logan Central is considerably established and developed with limited vacant opportunities for future development. The redevelopment of existing facilities may be required to accommodate future growth. Logan Central is geographically dispersed and spread over a substantial area that is not generally walkable or within easy access of the rail station. In addition the commercial area is considered to lack the identity and character of a commercial precinct. Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 12

16 The major commercial precinct within Logan Central incorporates Council s administration building. This is not proximate to the retail centres within Logan Central Logan City Centre, Logan Central Plaza, Station Road. Subsequently these retail centres do not gain the expenditure benefits of servicing Council s 600+ employees at its administration building Logan Central is lacking the presence of significant national firms within the area, this can often limit interest from other firms. Based on the above analysis there may be an opportunity for redevelopment of some older existing facilities and potential amalgamation of sites to accommodate commercial office land uses. Such development represents an opportunity to transform the existing image, identity and create a more commercial friendly precinct Type of Tenants Our initial analysis indicates that the existing commercial office tenants in Logan Central principally comprise the large scale activities of the Logan City Council, small government services, and local professional service providers. Whilst the centre is dominated by Council s administration offices the most common office requirement is for small scale (50 sqm to 150 sqm.) tenancies servicing the local professional services and government services market. This is consistent with the demand for one or two level C and D grade office premises. If incorporated into a single building this is likely to reflect floor plates of 300sqm to 500 sqm. The ability for Logan Central to attract larger sized office tenants is dependent on how well the centre meets the key drivers for attracting regional and sub-regional office tenants. These key drivers are considered to be: Proximity to customers and suppliers Proximity and access for management and employees public transport, major road access, car parking Accommodation costs principally rent and comparison to competing areas Availability of supporting services retail, food catering, entertainment Government policy, specifically in relation to centres policy, office accommodation policies, and infrastructure investment. With respect to the above drivers of regional and sub-regional office tenants Logan Central currently rates at the lower end of the scale for most of these factors. The centre is relatively distant from other office centres though there is a significant level of industrial businesses in proximity that could generate office demands. Whilst not having undertaken a demographic review of the study area previous work in relation to this indicates that the study area is more reflective of blue collar workers and white collar service workers (retail trade, health workers, education workers, etc, with non office requirements). Factors in favour of Logan Central to attract regional and sub-regional tenants include potential competitive accommodation costs and government activity centre and decentralisation policy. As a Major Regional Activity Centre Logan Central is intended to provide for the sub-regional office requirements of Federal, State, and Local government under the South East Queensland Regional Plan. This has the potential of being supported by the Queensland State Government s office decentralisation policy. We understand initial discussions have been undertaken in regard to this opportunity for Logan Central. From an accommodation costs perspective the centre has the potential to be competitive in relation to office rents for larger scale developments suitable to larger tenants if the appropriate form of office building can be constructed and necessary master plan improvements implemented to increase the centre s attractiveness as a sub-regional office location. Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 13

17 2.3.4 Construction Costs Looking forward, it is considered that low-rise office development represents an appropriate commercial land use. Indicative commercial office construction costs for low-rise office developments have been sourced from Rawlinsons Construction Handbook 2010 Based on the maturity of the Logan Central commercial office property market, Urbis considers low-rise office accommodation the most likely development outcome at present. Furthermore this type of building targets the type of tenancies generally attracted to these types of non CBD locations. Typical occupation of this type of commercial office accommodation includes firms that may prefer standalone premises, businesses that are not site specific and suburban local businesses. Medium or high-rise development has not been costed as it is not envisaged to be the most suitable option for the area based on potential demand. The costs listed below provide a range on a rate per square metre basis for low-rise, fully serviced office accommodation of a basic standard. On this basis, costs have been sourced for two and four storey office buildings considered to be consistent with surrounding development and in line with typical commercial office requirements for a secondary location such as the study area. Accordingly the figures produced on this basis are tabled as follows: Com mercial Const ruction Costs Offices - Low Rise (Fully Serviced) Lettable - Two Storey - Standard finishes, air conditioning - no li ft $1,650 - $1,780 Three Storey - Standard finishes, air conditioned, lift $1,860 - $2,005 Four Standard Storey finishes - and facilities, airconditioning, slow lifts $2,040 - $2,200 Fitout - Basic standard of quality $530 - $570 Parking - Open Parking Areas (Rate/park) - Cons truction Cost Range Rate/m² Bitumen paved, stormwater drainage, min imal l ighti ng, some landscapi ng $3,025 - $3,265 Underground Parking - $45,000/park 1. Costs noted above are for Brisbane Source : Rawlinsons Construction Handbook 2010; Urbis These costs are construction costs only and therefore do not include any costs associated with professional fees, finance costs and any allowances for land and holding costs. Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 14

18 2.3.5 Commerciality of Office Development To determine the most commercially viable form of office development for the study area, high level feasibility analysis has been undertaken. This incorporated analysis of construction costs and the appropriate rents and yields considered appropriated for this type of development. The following table highlights the potential returns for a single, two and four storey office building. Construction Cost a nd Potential Returns - Com mercial Development Proponent Unit Single Lev el Two Storey Four Storey Floorspace Gross Floor Area m² 1,200 2,750 3,040 Total Carparks Carp arks Land Cost Resulting Plot Ratio Land Cost $ $440,000 $1,000,000 $1,520,000 Construction Cost Total Office Cost $ $2,454,300 $6,291,038 $8,197,968 Total Car Parking Cost $ $150,960 $3,798,988 $4,708,565 Civil $ $50,000 $60,000 $70,00 0 Infrastructure Charges $ $30,000 $35,000 $35,00 0 Demolition Costs/Site Prep $ $90,000 $225,000 $342,0 00 Total Construc tion Cost $ $2,775,260 $10,410,025 $13,35 3,533 Professional Fees $ $80,382 $285,251 $371,8 38 Tot al Developm ent Cost $ $3,295,642 $11,695,276 $15,24 5,371 Holding Costs & Selling Costs$ $329,564 $1,169,528 $1,524,537 TOTAL COST $ $3,625,206 $12,864,803 $16,76 9,908 Rent al Income $450,000 $1,031,250 $1,140,000 Capitalised Value % $5,142,857 $12,890,625 $14,25 0,000 Development Profit $ $1,517,651 $25,822 -$2,519,908 Source : Rawlinsons Construction Handbook 2010; Urbis Assumptions adopted in above analysis includes: All costs and figures produced in the above table is in today s dollars. Land cost is based on sales of commercial development sites. Yields and rentals have been adopted as per preliminary research results. Construction costs have been obtained from Rawlinsons Construction Handbook Professional Fees have been applied at 2.5% of Total Construction costs (incl land component). The above high level assessment shows that a single storey office building returns a more positive outcome to that of a two or four storey building. The above analysis does not account for development timeframes/cash flow periods. Based on our initial findings, a single storey development provides a Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 15

19 positive return. The most significant factor which affects any development is the basement car parking component. As the GFA increases there is a larger requirement for car parking and accordingly the costs rise considerably. Hence, the four storey development produces a negative return. Based on the above analysis it is considered that a one storey office building is the most commercially viable development option at present. It is considered however, that the revitalisation and rejuvenation as part of the Master Plan may allow for higher density development. Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 16

20 SUMMARY OF KEY FINDINGS 3 Summary of Key Findings Logan Central is a Major Activity Centre well located along significant transport corridors and situated between Brisbane and the Gold Coast. To examine and discover the opportunities for this area, this preliminary residential, retail and commercial market analysis has been undertaken. The following presents the findings for the study area in terms of the residential, retail and commercial property markets Residential Logan Central has shown growth in both median house and unit price and on median weekly rentals based on historical data. As the region continues to grow, there is an increasing requirement to provide suitable accommodation for these additional residents. Analysis within this report supports the development of low-rise units (three storey), as the most commercial and financially viable development for the area. The development of low-rise units promotes the highest use of the land and provides for an increased density of occupants to accommodate growth within the region over the next 20 years. Furthermore, the provision of higher density residential living options has a flow on effect of supporting demand for retail and commercial land uses. The most viable form of residential development for the Logan Central Master Plan reflects a density of three storey units Retail At present, the majority of existing retail facilities within Logan Central is in the form of strip convenience retailing. Urbis considers the most commercially viable option for future retail to be consistent with the existing strip retail land uses. Analysis indicates that the development of a larger enclosed neighbourhood centre does not provide a positive return at this point in time. It is considered, the revitalisation of the area as part of the Master Plan development will transform the area to create more of a retail destination and therefore attract a wider variety of specialty retailers to the area Commercial As a secondary commercial office region, Logan Central is considered to be an attractive destination for Government offices and small/local businesses. Proximity to rail and major roads promotes the area as an attractive commercial location. A high level review of the area, shows that the majority of commercial office accommodation is in the form of one, two or three storey office buildings. It is considered that further development as part of the Master Plan consistent with this type of land use would be the most suitable type of commercial development. As such, developments of greater building heights are not supported at this time. Having regard to market characteristics, Urbis considers a one storey (one level) office building the most suitable commercial development for the study area at this time. From an accommodation costs perspective the centre has the potential to be competitive in relation to office rents for larger scale developments suitable to larger tenants if the appropriate form of office building can be constructed and necessary master plan improvements implemented to increase the centre s attractiveness as a sub-regional office location. Rpt-BPE Logan Central Master Plan- Market Analysis- Final Page 17

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