Outlook positive for Brisbane's CBD office market: Knight Frank

The Brisbane CBD office market will benefit from continued growth in Queensland’s economy, according to the latest research from Knight Frank.

Their Brisbane CBD Office Market Overview found the underlying growth story of Brisbane and Queensland remains, with employment in the office-based sectors to show sustained growth, despite economic growth forecasts moderating due to global factors.

Knight Frank Partner Research and Consulting Queensland and report author Jennelle Wilson said, “forecast employment growth is expected to be a standout in 2019 with the Brisbane region to record 25,000-plus more jobs in the core office-based industries, according to Oxford Economics"

“While 2020 is expected to be lower, the coming five years will average 10,500 office based jobs per annum."

The Knight Frank findings showed tenant demand in the Brisbane CBD office market had remained steady with net absorption positive and vacancy decreasing to 11.9%, the lowest level in seven years, and down from 14.6% a year earlier.

Knight Frank Partner and Joint Head of Office Leasing Mark McCann said, the finance and insurance industry accounted for 26% of tenant activity over 2018 and 2019 due to the Suncorp pre-commitment to 80 Ann Street, followed by government and public administration at 22%, and resources and energy at 10%. 

“For the past 12 months both the CBD and fringe markets have recorded positive net absorption, ending the period of one market stealing tenants from the other," he said.

Supply additions in the market through late 2019 and early 2020,  will place a gap on further near-term vacancy falls, with vacancy expected to tick slightly upwards to reach 12.5% in January 2020.

From 2020 onwards the vacancy rate will resume a downward trend.

Ms Wilson said effective rental growth has continued in the Brisbane CBD office market, as vacancy has decreased and demand remains positive, with prime and secondary effective rents growing by 1.2% and 5.6% year-on-year respectively to July 2019.

“The majority of uplift is coming from face rents as incentive erosion has slowed. Tenants are motivated to relocate and upgrade where capital costs are mitigated.”

"Investment volumes in the Brisbane CBD office market are high, sitting at $2.86 billion over the year to September, roughly $1 billion higher than the corresponding period one year earlier ($1.82 billion)," she said.

While sales over 2018 were dominated by offshore buyers, there has been a noticeable decline in the level of direct transactions being undertaken by offshore buyers during 2019, according to the research.

The data shows the balance between domestic and offshore buyers has flipped in the 2019 calendar year to date, with offshore purchasing representing only 17% of transactions, compared with 73% in 2018. 

Yields in Brisbane’s CBD office market have continued to tighten, although the pace of contraction is reducing.

Mr McGrath noted, “Compressing by 23 basis points over the past year, Brisbane CBD yields are starting to move more in line with the Sydney and Melbourne CBDs.” 

“This comes after a period of accelerated yield compression as Brisbane was re-rated by investors," said Mr McGrath.