This article is from the Australian Property Journal archive
AFTER consistent tightening over three consecutive six-month periods, Brisbane’s CBD office vacant rate is expected ease upwards by January, before resuming its downward trend through 2020.
According to Knight Frank’s latest Brisbane CBD Office Market Overview, the market is settling back into a more standard growth-based pattern of demand.
Knight Frank research and consulting Queensland, and report author Jennelle Wilson said the CBD and fringe markets have recorded positive net absorption over the past 12 months, ending the period of one market stealing tenants from the other.
“While cross border moves will continue to occur as tenants’ needs change, with less construction in the fringe there will be less drift to new fringe space from the CBD.”
According to the Property Council, Brisbane’s CBD vacancy rate fell for the third consecutive six month period in the first half to 11.9%, compared to 12.9% in January. Positive net tenant demand accounted for 0.4%, along with 0.6% from withdrawals, and there was no new supply in the period, although some 54,200 sqm will come online in the next six months. Vacancy is expected to tick slightly upwards to reach 12.5% in January 2020, while m3property’s Inner Brisbane Office Market Update has this figure at 13.5%.
Australian and Queensland economic growth is expected to moderate to 2.1% for 2019 before slightly improvement to 2.2% for 2020, and then returning to around 3% as the short-term weakness unwinds. BIS Oxford Economics forecasts employment growth in the Brisbane region to be a standout in 2019, with over 25,000 more jobs in the core office-based industries. While 2020 is expected to be lower, the coming five years will average 10,500 office based jobs annually, dominated by key office occupiers of public administration, administrative and support services and professional and technical services.
Knight Frank expects the vacancy rate will resume a downward trend from 2020 onwards, however the quantum of the fall will be limited by the significant supply additions of 2021 and 2022, with a further 104,000 sqm of space to come online. Vacancies will remain just above 10% until 2023/2024. According to m3property, vacancies would be circa 11% to 11.5% at the end of 2021.
According to m3property’s Casey Robinson, after a number of years of flight to quality, there has been an increase in the number of lease renewals as a proportion of total leases.
“Renewing a lease is a prime example of corporate firms trying to cut costs in a time of weaker business confidence and conditions. Our analysis of a sample of leases across the Inner Brisbane market shows that lease renewals increased from 13% in 2017, to 18% in 2018, and circa 30% for leases struck in 2019 to date,” Robinson said.
Wilson said the majority of uplift is coming from face rents as incentive erosion has slowed, and tenants are motivated to relocate and upgrade where capital costs are mitigated.
As vacancy has decreased and demand remains positive, prime and secondary effective rents have grown by 1.2% and 5.6% year-on-year respectively to July, Knight Frank data shows.
Knight Frank data shows the finance and insurance industry accounted for 26% of tenant activity over 2018 and 2019, largely due the Suncorp pre-commitment to 80 Ann St, followed by government and public administration at 22%, and resources and energy at 10%.
Rio Tinto commitment to 20,000 sqm in in the Midtown Centre development remains the largest deal of the year so far.
Co-working and serviced offices also contributed directly to net absorption, accounting for 6% of total leasing activity in 2018 and 2019, with WeWork committing to 4,600 sqm at 260 Queen St, while the legal sector has also seen more activity.
Major requirements in the market include Sunsuper for up to 16,000 sqm, McCullough Robertson with up to 6,000 sqm, and the state government’s potential requirement for over 25,000 sqm.
