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Why 2011’s flood recovery is a poor weathervane for the industrial market

By Juliet Helmke
24 March 2022 | 1 minute read
Vanessa Rader

An expert has highlighted how industrial land values could perform very differently during the clean-up of the ‘22 Queensland floods.  

Vanessa Rader, Ray White Commercial’s head of research, commented that for a lot of commercial property owners now embarking on restoring their assets, the task might feel all too familiar.

“There are many, notably in the SEQ corridor, which remember the impacts of the Brisbane floods of 2011 and are now faced with the prospects of rebuilding again,” Ms Rader said.

But she noted that landlords and tenants would be facing a different picture in 2022.

“During the time of the 2011 Brisbane floods, the demand for quality stock was not aligned to what it is today. Higher vacancies saw tenants able to relocate quickly, while assets sat in the clean up phase for a prolonged period,” she said.

Yields during this time rose by as much as 2 per cent for flood-affected properties, while rents dropped more than 15 per cent with incentives skyrocketing. 

“Furthermore, owners were hit by rising insurance premiums further pressuring their bottomline. The effects of the flood continued to be felt for three to four years later, with those assets still attracting discounts to secure a tenant or when sold with loan-to-values representative of their increased risk,” she said.

Events of the past two years have placed the country’s industrial investment appetite in an entirely different ballpark.

“The lack of quality stock in the marketplace and the insatiable demand to purchase has seen some turn a blind eye to the floodwaters,” Ms Rader said of current interest in investment, even while properties have not yet been restored to their previous state.

“Many prospective buyers continue to request access to view assets despite the knee high flood waters, with some eager buyers requesting to be advised when waters were down to ‘gumboot height’ so they could inspect a property.”

In this landscape, tenants’ efforts to relocate their businesses may face increased challenges. There are few vacancies across South-East Queensland (SEQ), and those looking to move are facing steep rents and few incentives.

The cost of clean-up for owners has also risen in light of recent trade and supply shortages. And with what scant resources exist now allocated to rebuilding efforts, planned development, which was already impacted by the shortages, has been pushed out further.

Some discount on flood-affected properties is anticipated, but Ms Rader said that ultimately, “it is unlikely that the current low rates will grow as they did in 2011 particularly if FOMO continues with some buying groups”.

“A more considered approach will be needed by purchasers and banks to ensure that the increased risk is appropriately factored into values,” she said but noted this may be a difficult task as rents are unlikely to experience considerable reductions.

Why 2011’s flood recovery is a poor weathervane for the industrial market
Vanessa Rader reb
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Juliet Helmke

Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.

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