Its a sleepy little town
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.