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18 May
ACORPP Market Voice - Brisbane Market Struggles to Find the Positives



With Matthew Buckley. Director ACORPP Brisbane

In this Market Voice, we switch our focus east and see how the commercial property is faring in Brisbane. Local ACORPP director Matt Buckley analyses the statistics that show sector doldrums are not confined to just Perth.

Snapshot: Brisbane Commercial Property Sector

• 2.2 million square metres - Total lettable space.
• 9% – Premium grade.
• 40% – Grade A.
• 38% – Grade B.
• 13% – Grade C and D.
• 53%  - Prime office stock including that under construction.
• 51% – Secondary office stock (highest rate on the east coast).
• 40% – Incentives for mid-size tenancies are at or above this level.

CBD Full Floor Chart

A tale of two cities

The Brisbane commercial property market is closely mirroring the Perth experience with many indicators suggesting the market is going to continue to be soft for owners and very healthy for tenants.

Of course, both markets previously had a heavy reliance on the mining sector and supporting industries and the reversal of the boom on both sides of the country has been well-documented. Like their West coast counterparts, Brisbane tenants are now beginning to understand they have a “once in a business opportunity” to secure an office leasing deal which could deliver big savings while other areas of their business may be doing it tough. Incentives for mid-size tenancies are sitting in the 40 per cent range with owners trying to maintain face rents to shore up building values. 

Sub lease space

Much of this pressure is being applied by tenants sub leasing surplus space. This is maintaining incentives at high levels and putting pressure on those face rents. Sub lease space is an attractive option as it is usually already fitted. The primary tenant is often prepared to “cut their losses” and strike a sub-lease deal to fill that space at as little as half of what they are paying.  This makes direct lease space less competitive and therefore higher incentives are maintained. Given this backdrop of downward pressure on rents and upward pressure on incentives there has been a curious counter cyclical movement in acquisition over the past 12 months with demand for office buildings in the CBD higher than would be expected in this economic climate.

CBD Vacany Forecast

Vacancy rate

Backfill space is set to reach a record level of some 27,000 square metres, compounded by further space that can’t be filled within new construction due to be completed in 2016. The CBD vacancy rate is expected to touch on an unwelcome record at just under 20 per cent later in the year – up significantly from a recently announced average of 14.9 per cent.  The current highest overall vacancy rate recorded for Brisbane is circa 16.5 per cent. The take up of office space (net absorption) is seriously down on historic levels.

Many tenants are now taking the opportunity to upgrade into better grade buildings to take advantage of improved incentives and better rent terms. This has exacerbated the vacancy levels in B and C grade buildings, currently at 19.4 per cent and 16.6 per cent respectively. These rates are expected to increase significantly with the completion of 1 William Street that will see numerous government departments relocate from a range of B grade buildings. Unless a significant portion of this space is repurposed for residential or other uses or there is significant relocation of tenants back to the CBD, the vacancy levels in this grade of stock will remain high for many years.

The outlook

All the indicators confirm that it continues to be a tenants’ market – either in a flight to quality or in renegotiation of more favourable lease terms. Sub leasing will continue to apply pressure through incentives or in a gradual reduction of face rent. Vacancy rates may peak at close to 20 per cent.

One bright spot is the increase in acquisition which demonstrates a long term confidence in the market and an eventual return to more sustainable conditions. Prospective or existing tenants would do well to seriously consider their options as there may never be a better time to acquire or improve your CBD address.



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