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Low vacancy rates, high rents and a lack of suitable offices in Sydney and Melbourne have prompted a flurry of companies to eye Brisbane as a possible solution, with the city's fringe market experiencing strong activity during the second half of the year.
The latest Brisbane Fringe Office Market Overview released by Knight Frank found there had been a significant uptick in activity across Brisbane's fringes over the past year.
The Knight Frank report found vacancy in the Brisbane fringe office market is forecast to fall from 14.5 per cent as of October 2018 to 13.8 per cent in January 2019, with the strongest improvement coming from the A-grade market.
Research also showed prime effective rents grew by 4.4 per cent in the year to October 2018, the highest rate of growth in six years, with Knight Frank forecasting further increases.
“There has been noticeably higher tenant activity across the fringe during 2018, with negotiated leases for spaces of 1000sq m or above dominated by tenants in the engineering and IT sectors,” Knight Frank partner Andrew Carlton said.
“While the CBD is set to remain a strong competitor for larger tenants, the fringe market has regained traction in the past six to nine months.”
As Queensland's economy continues to strengthen, solid employment forecasts, upside for commodity and energy-related industries, and competitive deals on offer in quality fringe accommodation are boosting the state's net absorption levels.
Brisbane’s broad infrastructure pipeline, which includes the $3 billion Queen’s Wharf Project, Howard Smith Wharves, the new Brisbane Airport Redevelopment, the $5.4 billion Cross River Rail, and Brisbane Quarter, is also playing a large part in the city's improving employment base.
“With little imminent supply and the rebalancing of demand between the CBD and fringe, rental growth will be sustained, ranging between 3.7 per cent and 4.5 per cent year on year for the next three years,” Knight Frank partner Jennelle Wilson said.
The Knight Frank report found the city's Inner South remains the precinct with the lowest vacancy rate at 8.6 per cent, while the Urban Renewal precinct has seen the greatest activity.
Milton has seen a great improvement, with the availability of modern, refurbished accommodation, particularly at Milton Green, spurring activity.
A spate of transaction activity has further strengthened the demand for opportunities in Brisbane's fringe office market, with upwards of $500 million being exchanged.
Some high-profile sales have included Growthpoint's acquisition of 100 Skyring Terrace in Newstead, as well as the sales of 825 Ann Street and 100 Brookes Street in Fortitude Valley.
“We’ve seen a trend of domestic funds outbidding offshore buyers for the limited opportunities in the fringe market,” Knight Frank partner Ben McGrath said.
“In 2017 offshore buyers accounted for 46 per cent of transactions, however for 2018 this may slip to 15 per cent.”
“While unlisted funds and wholesale groups have remained the dominant purchaser type, REITs have increased their exposure in the fringe this year with the higher yields attractive to listed entities.”
McGrath added that yields have continued to tighten across both prime and secondary assets as both the global weight of funds and improving demand attract investment.
