A STRING of major infrastructure projects is attracting office tenants back to the Brisbane CBD, generating strong investment activity and taking vacancies to historic lows.
The year began with a flight to quality trend that didn’t let up; the prime grade market made up 90% of the 21,739 sqm of positive net absorption in the six months to July.
According to CBRE, more than 80% of the 150,000 sqm in leasing transactions completed year to December involved prime grade space. Among these were the 39,700 sqm pre-commitment by Suncorp to 80 Ann Street, the Department of Veteran Affairs lease at 480 Queen Street, Westpac at GPT’s Riverside Centre on Eagle Street and co-working space provider WeWork at 192 Ann Street.
CBRE expects the vacancy rate to have tightened to 9.5% by the end of 2018, its lowest in a decade.
The only project under construction are the 7,200 sqm boutique workplace The Annex, at 12 Creek Street, Shayher Group’s 300 George Street and 80 Ann Street, which have a combined net lettable area of around 100,000 sqm.
The previous five-year period saw double the amount of space developed, in an environment that saw record high vacancies and record low employment growth.
A major pipeline of infrastructure projects through the city, including the $3 billion Queen’s Wharf project that will transform 27.3 hectares of waterfront sites into a casino, resort and residential precinct; the planned $1.4 billion Eagle Street Pier overhaul, and the Cross River Rail project are making the CBD a more attractive proposition.
CBRE’s Queensland state director, Chris Butters described it as “game changing”.
“Never before has the Brisbane CBD seen this level of investment, with multiple projects underway at the same time.”
Savills state director of office leasing, John McDonald said the last 12 months had seen an improvement in sentiment across the Brisbane office markets, fuelled by good tenant demand fundamentals and business expansion.
“Into 2019, we expect prime office space to remain a focus for tenants of all sizes active in the market. Flight to quality and speculative suites remains at the forefront of market trends as economic improvements and market confidence continues to drive the road to recovery.
“Prime office vacancy is likely to tighten further, prompting a number of landlords to edge face rents upwards. Despite the resumption of Transit Centre, the secondary market may continue to face headwinds, however a number of building owners employing repositioning strategies to compete strongly for tenants.”
Improving leasing conditions prompted Charter Hall to acquire a Queen Street Mall site known as No 1. Brisbane for $93.96 million, with approved 81-storey tower scheme, shortly after its Charter Hall Long WALE REIT and Charter Hall Direct PFA Fund picked up the 11-storey 40 Tank Street office building for $93.0 million with an eye to its development potential.
Major commercial developments in the pipeline include 80 Ann Street by M&G and Mirvac, and Charter Hall and Investa’s proposed 360 Queen Street project.
Butters suggested occupiers should be reviewing lease strategies around three to four years from expiry to secure the right location.
“The lack of early consideration of accommodation strategy will become problematic for tenants with upcoming expiries in a tightening prime market,” he said.
With a focus on fitted or built product, Savills has recorded 70% of tenants opting for fitted space based on leasing activity under 5,000 sqm with the majority of this activity being sub 500 sqm.
He said Tenants have been attracted to significant capital expenditure as landlords across the city look to reposition their assets, with 70% of tenants opting for fitted space based on leasing activity under 5,000 sqm, with a majority of that being in the sub-500 sqm sector.
Buildings at 100 Creek Street, 66 Eagle Street, 345 Queen Street, and 15 Adelaide Street have all undergone, or are in the process of significant ground floor lobby refurbishments in order to enhance building presentation and improve tenant amenity and retention.
The $10 million upgrade of 100 Creek Street includes the first integrated state-of-the-art digital canvas wrapping around the lobby lift core.
Australian Property Journal