Brisbane office vacancy declines for the first time since 4Q19 | Real Estate Asia

Brisbane office vacancy declines for the first time since 4Q19

Vacancy rate fell to 15.8% in the CBD in Q3 2021.

According to JLL, Brisbane CBD and Near City recorded 2,500 sqm and -2,000 sqm of net absorption over the quarter, respectively. 

“Demand was driven in both markets by small tenants, as large occupiers (>1,000 sqm) continued to consolidate and contract. Small tenants (<1,000 sqm) contributed 9,800 sqm and 1,000 sqm of take-up across the CBD and Near City markets, respectively.”

Here’s more from JLL:

Vacancy decreased marginally to 15.8% in the CBD market over the quarter, the first decrease recorded since 4Q19. In the Near City market, vacancy rose 7.0% over the quarter to 18.4%, the highest vacancy rate recorded since JLL began tracking the indicator in 2001. Both markets' vacancy rates remain well above their respective 10-year averages. 

Supply remains significant across the wider Brisbane market 

Six projects are under construction in the wider Brisbane office market, totalling 148,500 sqm. One project is under construction in the Brisbane CBD totalling 60,200 sqm and is expected to complete in 1Q22. The remaining five projects in the Near City market are expected to complete in 2022 (four projects totalling 65,100 sqm) and 2023 (one project totalling 23,200 sqm). 

The future supply pipeline is large, with 23 projects having planning approval across 716,700 sqm in the CBD and Near City markets. Out of this total, 58% or 414,100 sqm has been approved in the Brisbane CBD and 42% or 302,700 sqm in the Near City. However, many of these projects do not have an expected completion date and will require significant pre-commitment to commence construction. 

Prime gross effective rents remain largely unchanged over 3Q21 

Prime gross effective rents (PGER) decreased 0.9% over the quarter to AUD 391 per sqm per annum, a 4.7% decrease year-on-year. The Near City recorded marginal PGER growth, increasing 0.2% to AUD 290 per sqm. Headline incentives increased in the Brisbane CBD market by 0.6% to 42.0%. The Near City market incentive rose marginally to 43.5%. 

Yields in the Brisbane CBD market were unchanged for the tenth consecutive quarter, at a range of 5.00% - 6.25%. In the Near City, the yield range remained unchanged at 5.75%- 7.25% for the third consecutive quarter. 

Outlook: Leasing conditions are expected to remain challenged 

The occupier market is likely to remain challenging over the medium-term, as larger tenants reconsider and rationalise their space requirement. As a result, rental growth is expected to stagnate over the short term. However smaller tenants have remained active and are expected to continue to support demand. 

Buyers continue to be selective with the types of office assets they are interested in. Well leased assets, with strong covenants remain attractive. However, assets with short-term risk are less desirable.

 

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