Vacancy is falling and rents are lifting in Brisbane’s fringe office market amid jobs growth and a turnaround in tenant activity resulting in tightening supply.
After a number of years of relatively poor market conditions, the fringe office leasing market is now back on track with strengthening rents and lower vacancies, with engineering, IT and property businesses dominating leasing activity.
According to commercial real estate agency Knight Frank prime effective rents grew by 8.2 per cent in the year to April 2019 with the absence of any major new supply for the following 12 months will allow vacancy to fall to 11.2 per cent by mid-2020.
The inner-south office precinct remains as the tightest office market in the region with vacancy rates of 10 per cent, with the forecast supply holding steady over the next 12 to 24 months with limited near-term supply on the horizon.
“Effective rental growth of 4 per cent per year on average is expected over the next two years as conditions improve,” Knight Frank partner office leasing Shane Van Beest said.
Queensland and Brisbane's economic growth is now set to outperform the southern states due to population growth, infrastructure investment and exposure to export industries.
“This will result in employment growth, which will assist to accelerate rental demand in the fringe office market, with Brisbane employment within core office industries estimated to grow by 5.73 per cent during the 2018-19 financial year,” Van Beest said.
“Public administration and professional, scientific and technical services expected to have the greatest growth.”
Van Beest said net absorption in the Brisbane fringe office market over the first half of 2019 is forecast to be double the levels seen in the second half of 2018 at 24,500 square metres.
“On the ground, the market feels a lot tighter than the figures actually suggest with strong tenant enquiry and activity.”
“Already contiguous space over 4,000 or 5,000sq m is very hard to find in the near city which is a sign that the market could tighten up quicker than most people expect.”
“There has been steady take-up throughout the year with tenants new to the market a welcome boost.”
Tenants such as WSP, Southern Cross Media, DXC, Downer Defence, Ladbrokes and CPB Consortium have taken up space; these were either new to the fringe or consolidations from other precincts.
Knight Frank head of commercial sales Christian Sandstrom said there was record investment in Brisbane’s fringe office market, reflecting the greater interest in Brisbane as an investment destination.
“In the 2019 financial year transactions totalled $1.048 billion, and a number of further sales are likely to complete prior to the end of the financial year,” Sandstrom said
“The dominance of purchasing activity by domestic funds has continued in the 2019 financial year, with $805.1 million of transactions in the year to date.”
Offshore funds accounted for 42 per cent of purchasing activity in both the 2017 and 2018 financial years, the activity of major domestic listed and unlisted funds has restricted this to 26 per cent in the current financial year.
Fringe prime yields continued to tighten, down a further 35 basis points over the past year and remained firmly on a tightening cycle, with median yields down 35 basis points over the past year and 260 basis points in this cycle.