Gradual Improvement Expected For Brisbane Office: CBRE


A gradual improvement has been forecast for Brisbane’s commercial property sector as the drag from the resources downturn comes to an end.

That was the consensus at today’s CBRE Brisbane Market Update presentation, which highlighted expectations of improving market conditions next year, continuing into 2017.

CBRE’s Head of Research, Australia, Stephen McNabb told attendees at today’s presentation that the “forward momentum” in Brisbane aligned with growth in the Queensland economy, although he noted that this growth would not be of the same magnitude as the previous market cycle.

“Overall, we look like we’re past the bottom and over the next five years we expect that around 8,000 new jobs will be added to the Brisbane market – translating to the need for 100,000sqm of office space,” Mr McNabb said.

“This feels like a ‘normal’ level of demand, as opposed to the 40,000sqm to 50,000sqm of demand that we’ve seen per annum over the past five years.”

However, Mr McNabb noted that with new supply coming on stream, Brisbane’s secondary office market would remain under pressure, with vacancy rates in that tier expected to peak next year at between 20% and 25%, relative to an overall vacancy peak of 19-20%.

CBRE Director, Capital Markets, Flint Davidson said the divergence between Brisbane’s prime and secondary office stock continued to widen, with the secondary market to remain challenging.

However, Mr Davidson said private and offshore investors were continuing to actively pursue opportunities in the prime market given Brisbane’s current value proposition.

“Normally, you would see a 70-80 basis point spread - or even 100 basis points - between Brisbane investment yields and those in Sydney and Melbourne, however we’re currently running at a spread of 150 basis points,” Mr Davidson said.

As an example, Mr Davidson cited the sale of Waterfront Place, which had transacted at a yield of 6.75%, as opposed to the 5.25%-5.5% yield that could be expected on a comparable asset in Sydney.

His expectation is that the yield gap will continue to widen to as much as 200 basis points, based on transactions that are expected to occur in Sydney and Melbourne in Q4.

“This differential is very attractive for offshore capital, particularly for investors who are struggling to compete in Sydney and Melbourne given the current cost of hedging,” Mr Davidson said.

The relatively strong performance of Brisbane’s fringe office market was another focus of today’s presentation, with Mr Davidson forecasting that the fringe would “surprise on the upside”.

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