Brisbane office market remains buoyant

[Malt]

http://www.propertyreview.com.au/arc...042005003.html

Brisbane office market remains buoyant

Brisbane’s office market continues to go strength to strength with the latest data showing vacancy rates are at historic lows for the six months to January 2005.

According to the PRDnationwide Commercial Property Watch report, demand has been fuelled by strong business expansion, particularly from the mining and energy sector and state and federal government.

The current official vacancy rate for the CBD office market is 5%, while the overall vacancy rate for the fringe market is 7.5%.

According to the PRDnationwide Research, the CBD office market has 84,000 sqm available for lease in a 1.7 million sqm market, while the fringe market has 56,000 sqm available for lease in a 743,000 sqm market.

PRDnationwide Brisbane research manager Paul Barratt said vacancy rates across all grades to remain tight over the next two years.

According to Barratt, there may be a slight rise with the introduction of the balance of remaining space in Riparian Plaza in late 2005. That will be followed by a moderate rise during 2007 as a result of the anticipated reset and reintroduction of 69 Ann Street and Suncorp Plaza.

However, Barratt added, the addition of Riparian Plaza is unlikely to affect all grades of the office market as a strong calendar year of absorption in the CBD could see the impact contained to the Premium and high end A-grade submarkets that may need to enter into some aggressive negotiations to retain tenants with 2005-06 expiries.

The report shows CBD net absorption over the past 12 months remained positive despite the addition of 45,000 sqm of space.

In the past 12 months ending January 2005, more than 60% of tenant relocations have involved commitment to a larger tenancy than the incumbent space.

Business expansion activities during the period resulted in 43,500 sqm of space been absorbed in the fringe market. At the same time the fringe market recorded net additions of 16,745 sqm.

A recent survey undertaken by PRDnationwide amongst CBD tenants who have recently committed to new space revealed 66% of tenants believe that they will have greater space requirements in three years time.

According to PRDnationwide Research, the tight market conditions combined with moderate supply additions and the booming business conditions will translate to real rent growth.

However, the rent rises will not be uniform across the market with particular grades and locales experiencing stronger growth than others.

In the last 12 months ending February 2005, CBD premium grade space has recorded a 16% growth in gross face rents and effective rents increasing by an impressive 19.5%, to average $392 sqm, over this period.

While CBD A-grade rents have grown during this period by 14% on a gross face basis and 25% on an effective basis.

However, figures for rental growth in the fringe are not as impressive as in the CBD.

According to Barratt, it should be viewed in context of a market that has seen no real rental growth in over a decade.

“The Inner South, Milton and the Urban Renewal Precinct have all enjoyed rent growth on an effective basis of between 11 and 15% over the past 12 months while Spring Hill and Toowong have not fared as well with rent growth on an effective basis of 7% and 3% respectively.

“Secondary stock in the CBD has seen rent growth on an effective basis of between 8 and 19%. Secondary stock in the fringe has seen the reduction of incentives contribute to growth in effective rents however only Milton secondary stock has enjoyed significant rent growth over the past 12 months, increasing by between 13 and 19%,” he added.

According to PRDnationwide Research, 2005 will see the completion of Riparian Plaza in the CBD, 189 Grey Street at South Bank and Oxygen at Spring Hill.

Early 2006 should see the completion of SW1 at South Bank and late 2006 the completion of Brisbane Square. However construction of Brisbane Square is currently reported to be behind schedule and Brisbane City Council have sufficient option in their existing lease to ensure they are not left homeless should construction continue into 2007.

“Leading up to the end of 2004 business conditions were at record highs and although the measure of business conditions taken in January 2005 reveals slightly weaker conditions, much of this has been attributed to seasonal variations, with business activity and general confidence remaining robust.

“In addition to this, a booming resource sector and strong and sustained population growth, combined with moderate levels of planned supply in both the CBD and fringe will result in a tight market for the next two years,” Barratt concluded.

Tenant Activity during 2004
• The mining and energy sector accounted for 13 major lease transactions equivalent to 28,500 sqm of space.
• The IT and Telecommunications sector accounted for 12 major lease transactions equivalent to 42,000 sqm of space however this is somewhat weighted by Telstra’s renewal over 29,600 sqm in the Brisbane Transit Centre.
• The government sector saw the Federal Government and State Government accounting for 30,400 sqm and 13,400 sqm respectively.

[OzInfo]

^ the cbd has the most available space - vacancy.

[Malt]

no, the CBD has the least available space, and the lowest vacancy.

5%.

Perths is around 12% afaik, thats just for you to get perspective on it.


Were waiting on our office boom. This low vacancy rate is promising, and will hopefully yield some large towers.

[Orfeo]

Originally Posted by OzInfo

^ the cbd has the most available space - vacancy.

.....Yes, it does have more space than the fringe which is available but that is kind of a moot point - considering the CBD total area is 140% more than the fringe I would be surprised if it didn't, even taking into account the lower vaccancy rate (which is the bit which really matters)

It is the same in all Australian cities as far as I can see.....

[OzInfo]

^ i was thinking of this chart, red the largest vacancy which is the cbd .. btw about perth, i read a local paper, saying how there's a big demand for office space in our cbd too, and how woodside is actualy needing even more space cos their tower is full.

[Malt]

^ ok i didnt understand what u were reffering to.

Then yes, out of that 5% of empty space in the whole city, most of it is in the CBD.
But that isnt a whole lot.

[JayT]

Malt - loved the article you posted the other day.
http://www.theaustralian.news.com.au...E25658,00.html

Brisbane a shrinking violet
Fiona Cameron
March 31, 2005
MINING company Rio Tinto is among a handful of big Brisbane CBD tenants looking to shore up future office space needs as the city's leasing market tightens.

Leasing options in Brisbane are fading as rising construction costs keep a lid on the new office tower development, according to industry analysts.

The only prime building with a significant amount of space available, Riparian Plaza, is due for completion mid-year after lengthy construction delays.

Rio Tinto is negotiating to lease more than 5000sqm of space in 215 Adelaide St, according to industry analysts.

Law firm Clayton Utz will vacate the space when it moves into Riparian Plaza later this year.


It is understood Rio Tinto is seeking to establish a shared services centre, separate to an office run elsewhere in the CBD by Rio Tinto Coal.

Jones Lang LaSalle is negotiating the lease, but the agency's commercial leasing director, Mark Curtain, said yesterday no deal had yet been finalised.

In other moves, several large tenants in Waterfront Place, including accountants PricewaterhouseCoopers and law firms Minter Ellison and Mallesons, are among those that have issued accommodation briefs to the market.

BHP Billiton, currently in the Riverside Centre, is also understood to be considering its medium-term accommodation needs of about 8000sqm, and has told leasing agents it will consider CBD and near-CBD locations.

The Brisbane CBD vacancy rate fell to 5 per cent in December, down from 7 per cent last July, according to Property Council of Australia data released last month.

It was the third lowest rate in the country, behind Canberra and Hobart.

Colliers International joint chief executive John Walklate said it was becoming difficult to locate quality space in Brisbane of 2000sqm or more.

He said the leasing market started to strengthen slowly 18 months ago, but had picked up momentum in the past six months.

Access Economics figures showed that in the past five years the Brisbane CBD white collar workforce had grown by 13,000 people, while in the same period the Sydney and Melbourne CBD workforces had not grown at all.

"Over the next four years, Brisbane (CBD workforce) is mooted to grow by another 10,000," Mr Walklate said.

"This would translate into a need for another 150,000sqm of space."

Meanwhile, prime sites that could have allowed new space to be built had been lost to residential development, he said.

They would now never be regained for commercial development because they had been fragmented into strata ownership, he added.

"Developers are having trouble stacking feasibilities, and although rents were growing, there is still a solid gap between where effective gross rents are and where they need to be to justify new construction," he said.

JLL's Mr Curtain said demand for Brisbane office space was coming from the mining and engineering sectors.

The 15 to 20 per cent rental growth seen last year in Brisbane's gross effective rents was not likely this year, but five to 10 per cent could be expected, Mr Curtain said.

Knight Frank associate director of suburban leasing Jason Hines said CBD tenants were beginning to look at fringe locations.

"There had been a similar cycle about 12 years ago, where tenants were prepared to look outside the city.

"Then, it had been rent based, whereas now it is availability based."

Tenants were often missing out on their first option and gazumping had become apparent in the city and the fringe, Mr Hines said.

Rents between $330 and $370/sqm had been achieved in the latest round of fringe city office developments, but the next generation of buildings were likely to see a leap in rents, he said.

Leasing incentives had eased considerably in the past 12 months, he added.

"I think you'll find there will be a lot of removal (of incentives) for existing tenants expanding and for existing tenants wanting to take up their options," Mr Hines said.

"Historically, a lot of building owners have been reluctant to give options, because a lot of tenants haven't traditionally taken them up and when their lease has expired they have gone back out into the market and then renegotiated a lease with their existing landlord.

"I think you will find that as the market tightens up, a lot of these tenants will be forced to take up their options because they have no other choice," Mr Hines said.

______________________________________________________________________________
I see more office buildings on the horizon for Brisbane. Hopefully they won't be all small ones. Though 150,000 square meters of space is equal to 3 fifty story towers in the next four years!!!

jt

[OzInfo]

Originally Posted by Malt

^ ok i didnt understand what u were reffering to.

Then yes, out of that 5% of empty space in the whole city, most of it is in the CBD.
But that isnt a whole lot.

yea i know, it isn't.