Brisbane CBD office leasing market turns corner, tenant demand improves: Savills
Leasing activity in the Brisbane CBD office market grew nearly 30 percent in the 12 months to June 2016, and the CBD now comprises around 2.27 million square metres of lettable space, according to Savills research.
Two new prime grade office buildings (180 Brisbane and 480 Queen St) were added to the stock recently.
Of the total lettable space, Premium Grade accounts for around 11 percent of office space. A Grade quality offers 41 percent of space and is now the largest category, while B Grade accounts for 36 percent. C and D Grades offer the balance 13 percent.
Savills' CBD Office Market Briefing for the second quarter of 2016 has identified 117,437 square metres of leasing activity (> 500 sq m) in the Brisbane CBD in the 12 months to June 2016, up 27 per cent from a year earlier but down on the five year average (123,357 square metres). The majority of these leases (nearly 60 per cent of space leased) were in the Uptown precinct.
The Brisbane CBD office leasing market looks to have turned a corner with 2016 showing encouraging signs of improved tenant demand. Competitive rents and incentive packages on offer are continuing to attract smaller businesses from the Fringe and Suburban precincts of metropolitan Brisbane.
The Queensland State Government has been quite active in the take up of space in the CBD, which is boosting overall business confidence. With 1 William Street nearing completion some government agencies have started to review their space requirements and taking up addtional space around the CBD.
Overall leasing activity in the Brisbane CBD is trending upwards with direct leases almost double that recorded 12 months ago. Of the 117,437 square metres of leased space, 86 per cent were direct leases, followed by sublease deals accounting for 7 per cent for the year ending June 2016.
Renewals accounted for 6,150 square metres or 5 percent of reported leases for the year.
The competitive rental environment continues to see increased demand for A Grade stock, while secondary stock also continues to attract tenants with a number undergoing refurbishments improving the overall amenity the building. 127 Creek Street is one such example of a B Grade building that has undergone a major refurbishment which included transforming full floors into small suites to accommodate demand from smaller businesses moving to the CBD.
While Deloitte’s predict soft employment growth over 2016, tenant demand from businesses relocating to the CBD will likely contribute to absorption levels.
Latest figures on total absorption will not be available until the Property Council release their Office Market Report in August however Savills Prime Full Floor availability report suggests approximately 32,000 square metres of prime office space has been filled since the start of 2016.
Demand for office space continues to come from varied sources such as child care, health, education and incubator businesses as well as an expanding State Government.
Of the 118,937 square metres leased in Brisbane CBD (>500 sq m) in the last 12 months, the ‘Government & Community’ sector was the dominant sector, leasing 26 percent of the stock, or 31,170 square metres.
Compared to 12 months ago, the tenant profile of reported leases has changed. The ‘Government & Community’ sector, which has typically held a large share of the market, businesses involved in the ‘Education & Training’, and ‘Healthcare’ sectors are increasing their take up of space in the CBD, while the ‘IT & Communications’ sector is also beginning to show increased activity.
The largest number of transactions however was in the ‘Property & Business services’ sector which recorded 21 transactions.
Of the 31,170 square metres of space leased to the ‘Govt & Community’ sector, 55 per cent was taken by the Queensland State Government.
‘IT & Communication’ recorded 14,242 square metres of leased space for the 12 months ending June. At 12 per cent of total reported leases, this is the highest level of activity in over ten years. Historically, this sector has accounted for less than five per cent of office leasing activity in the Brisbane CBD. SMS Management & Technology are one such firm who secured 1,230 square metres in 259 Queen Street, while Red Hat renewed their space over four levels in 193 North Quay.