Brisbane CBD on the cusp of office transformation: HTW Commercial

Brisbane CBD on the cusp of office transformation: HTW Commercial
Brisbane CBD on the cusp of office transformation: HTW Commercial

For many years, the Brisbane commercial market has largely gone under the radar in comparison to its southern counterparts…until now and according to the latest office report from property valuation firm HTW is now on the cusp of a major transformation.

The Herron Todd White report notes however, it will be a five-year project on the pathway to transformation into a world class city, with this fact being increasingly recognised in the commercial markets where there are increasing levels of interest in high quality commercial properties within Brisbane from Australian and international investors.

This has been evidenced by yield compression and strong capital growth over the past three years.

Yields which were solidly in the 6.75% to 7.25% range previously are now pressing downward into the 5.5% to 6.5% range, whilst capital growth of up to 30% has been recorded against some prime quality properties.

Against this backdrop however, the market is still plagued by persistently high vacancy rates, particularly in the B grade category and below.

This is holding back real rent growth and significant change in rents is not likely until Prime and A grade vacancies push lower into the single digits.

Recent leasing statistics released by Property Council of Australia have indicated that total vacancies in the CBD have contracted to a five year low of 13% as at January 2019.

The property valuers said, "Prime and A grade vacancies however are now at 10.4% and 9.9% respectively, and heading down."

"Gross face rents have stabilised with some assets seeing effective rents increase as incentives very slowly start to wind back, however vacancy rates remain high for secondary stock and face rents will continue to be flat as vendors compete to secure tenants."

"It is likely we will see a further widening in rentals between Prime or A grade and secondary accommodation," they added.

The fringe CBD leasing market is now largely dominated by the prime office precincts of Fortitude Valley (RNA, King Street precinct and Ann Street), Newstead (in and around Gas Works) and south Brisbane, according to the report.

Vacancy rates for fringe markets overall remain high at circa 14.8% but the better regarded precincts of south Brisbane and the Urban Renewal area are doing better at 10% and 14.2% respectively.

The report stated, "On the whole, fringe markets have been impacted by high vacancies in the CBD, but the Urban Renewal area is likely to continue to dominate the larger leasing and sale transactions."

"On the rental side, gross face rents appear to be increasing for premium buildings with some new leases reported at above $650 per square metre gross face. Incentives are also stabilising for prime assets."

"Conversely, secondary fringe CBD leasing markets are still oversupplied as tenants seek newer accommodation that is within close proximity of transportation and good retail amenities."

"Milton and Spring Hill commercial precincts continue to remain out of favour with tenants as vacancy rates continue to be the highest recorded for the fringe (21.5% and 17% respectively). These vacancies may present opportunities for re-purposing of some buildings in these areas," they noted.

There have been a significant number of quality commercial office listings in the first half of this year across the CBD, fringe CBD and inner-city areas.

Whilst many transactions are yet to transpire, there is reportedly strong interest being generated for well leased investment assets on both a local and interstate level.

"We believe some of these assets will likely achieve strong sale prices, as interstate investors priced out of Sydney and Melbourne see exceptional value in Brisbane (broadly speaking, there is a 150 to 250 basis point differential between Sydney or Melbourne versus Brisbane)," the valuers concluded.

Office Market Brisbane Cbd

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