Brisbane CBD office vacancy rate hits 5-year low of 11% in Q1

The vacancy rate dipped by 0.1 percentage points.

The Brisbane CBD recorded positive net absorption of 1,072 sqm in Q1 2024, according to data released by JLL. 

The need for additional office space was driven by small tenants (<1,000 sqm). The Brisbane CBD vacancy rate fell by 0.1 percentage points (ppts) to 11.0%, the lowest level since 2019.

Here’s more from JLL:

The Brisbane Near City market recorded another quarter of positive demand, with 4,172 sqm of net absorption. Small tenants were also the driving force for demand in the Near City, whereas new office completions and larger tenant movement were more prevalent over 2023. The vacancy rate decreased 0.3 ppts to 12.8%, which is the lowest level since 2013.

No office completions over the quarter

There were no new offices completing in Q1 2024 across the CBD and Near City. The ongoing need for additional labour, coupled with elevated material costs have impacted the supply pipeline in Brisbane, with more projects being pushed out into later years.

All new assets currently under construction in Brisbane are within the CBD and these total 161,300 sqm across three projects. 205 North Quay (44,312 sqm) is fully pre-committed to Services Australia and is projected to complete in 2025. 360 Queen Street (45,000 sqm) is 62% pre-committed and will be the next project to complete in 2026.

Face rent growth continues and incentives decrease marginally

Demand and supply dynamics have influenced the market, with strong rent growth in both the Brisbane CBD and Near City. Prime net effective rents were up 3.9% in the CBD and 2.9% in the Near City, q-o-q. Prime incentives reduced marginally to 40.9% in the CBD and reduced marginally in the Near City to 42.9% over the quarter.

Brisbane CBD prime office yields softened in Q1 2024 with upper and lower yields decompressing by 25 bps to range between 5.75%–7.25%, with the midpoint being 6.50%. Similarly, Near City prime yields softened by 25 bps on the upper and lower ends to range between 6.25%–8.00%, with the midpoint being 7.13%. 

Outlook: Few contiguous prime space options for larger tenants

Demand for quality office space is anticipated to continue, albeit at a slower pace year-on-year. Activity from government departments will likely reduce towards the end of 2024, however leasing requirements from small tenants and privates are expected to continue. Prime vacancy is forecast to reduce further; options are limited for tenants seeking to prioritise sustainability.

Interest rates are currently stable, yet they remain elevated. Although inflation continues to moderate, the Reserve Bank of Australia has noted it still remains too high. A reduction in interest rates is more likely towards the end of 2024 or into 2025, which could be a catalyst for an increase in investment activity.

Note: Brisbane Office refers to Brisbane's CBD office market (all grades).