Calm Before Storm for Brisbane Office Vacancy

Brisbane’s office market remains relatively unscathed by Covid-19 with office vacancy growing slightly from 12.7 to 12.9 per cent in the six months to July.

Office vacancy in south east Queensland performed better than Sydney and Melbourne which increased 1.7 and 2.6 per cent according to the Property Council of Australia’s Office Market Report.

The Gold Coast also performed relatively well in Queensland with vacancies moving from 12.8 to 13 per cent. Brisbane fringe suburbs jumped from 13.6 in January to 14.2 per cent in July.

However the extent of Covid-19’s impact on the future of office space in the region is unclear, according to office leasing experts.

Knight Frank partner Mark McCann said the Brisbane office market is experiencing, like all markets, a general downturn in transactional activity as many corporates come to terms with the current crisis and navigate their business going forward.

“With the exception of [Dexus'] The Annex at 12 Creek Street, there has been no new supply additions in the CBD and as such we do not anticipate significant fluctuations in the overall vacancy rate for the CBD,” McCann said.

“The extent of sublease space has not yet been realised in Brisbane but we do anticipate pockets of sublease to emerge over the coming months as corporates begin to finalise their new workplace designs post-Covid-19.

“The current average re-occupancy of most CBD building is between 50 to 60 per cent.”

Savills state office leasing director David Howson said that with the uncertainty in the market, tenants are continuing to review their office space requirements, with many no clearer as to the longer-term effects on their occupation.

“Those facing imminent expiries are looking for opportunities to extend or hold over their current leases, or re-set in better quality accommodation at terms similar to current passing rates,” Howson said.

“Current market murmurings foreshadow an influx of fitted space—both sublease and backfill—within the prime and secondary markets, with prime seen as potentially witnessing the greatest change in vacancy.”

McCann added that the focus of most owners during the first half of 2020 has been the implementation of capital works programmes on building and lobby upgrades, along with new wellness and hygiene initiatives to future-proof their assets going forward.

“While transaction volumes are low, we have not seen downward shifts in asking rents across the prime grade; incentives continue to be the trigger to increase marginally for any active tenants in the current market wanting to transact now.

“The B-grade market continues to be the most volatile, with higher tenant demand levels, but for space of less than 500 square metres.”

Earlier this month, Charter Hall lodged plans for a 35-storey office tower in the CBD while Cornerstone Properties submitted plans for a commercial tower in Brisbane's Fortitude Valley fringe.

Sekisui House recently lodged plans for a commercial building in West End.

Meanwhile investors and developers are looking for opportunities to obtain new assets while the market is down or revamp older stock to meet new tenant demands.