Brisbane office market caught in a perfect storm

Brisbane's CBD office market appears to be in the middle of a perfect storm.

Research from Knight Frank, published in late September, found that the Brisbane market is not only being plagued by softening tenant demand and a shrinking state government workforce but also increasing private sector contraction.

Source: Knight Frank

As at July, the Brisbane CBD office market vacancy rate stood at 12.8%, with negative absorption of 64,069 square metres - the worst net absorption on record.

According to Knight Frank’s research director in Brisbane, Jennelle Wilson, the total available space arising from the private sector contraction was about 72,894 square metres, compared with 51,762 square metres as at February 2013.

“Narrowing the focus to just the contraction space, the state government accounts for some 44% of the 113,637 square metre contraction impact," said Ms Wilson. "Of the private sector, the resource sector (22%), finance (10%), IT/communications (8%) and engineering (6%) are the dominant contributors."

Despite the worst impact of those factors being in the past, the research said net absorption was not expected to recover in the short term, "with a negative result expected for the second half of 2013".

"However, this is not expected to be anywhere near as severe as in the first half of the year, with -11,170 square metres forecast".

Knight Frank director of CBD leasing, David Howson said "net absorption is expected to return to positive levels in the first half of 2014, with the steady improvement in international economic factors expected to have a flow through in confidence to the Australian market which has been crippled by indecision, exacerbated by the lengthy Federal election campaign".

He is tipping the vacancy rate to remain relatively unchanged to the end of the year, increasing to 12.9%.

Thereafter, Mr Howson added even though the net absorption was expected to take 12-18 months to recover to trend levels, "the absence of any new supply to the market will assist to bring the vacancy rate down during 2014 and 2015".

The vacancy rate was not forecast to fall below 10% before the next wave of supply additions in late 2015/2016, the research said.