Brisbane’s CBD office market won’t start recovering until the first half of 2020, rather than as early as the end of the year as some have forecast, and could be pushed back even further, research house BIS Oxford Economics has warned
Amid a “shuffling of tenants” but minimal take-up of new space, BIS said talk of an imminent recover was “premature”.
“Tenants are looking for efficiencies rather than expansion space and those that are moving are committing to less space than they had before,” said Christian Schilling, senior project manager at BIS Oxford Economics and author of its latest report, Brisbane Commercial Property Prospects 2018-28.
After commercial agents CBRE had predicted Brisbane’s prime office vacancy rate would drop to 8.9 per cent by the end of the year (down from 12 per cent at the start of the year) Mr Schilling said his research showed the CBD market remained oversupplied and continued to have some of the highest leasing incentives in the country, averaging 35 to 40 per cent, depending on the grade of space.
“For building owners, that means significant capital expenditure on lease renewal and an effective rent that is some 60 per cent (or $400 per square metre for A-grade space) below 2008 levels,” he said.
Mr Schilling warned the mooted recovery could be pushed back beyond 2020 if a number of major tenant briefs in the market commit to proposed new towers, rather take up existing space, triggering an “out-of-cycle” construction boom.
“The buoyant investment market is tempting institutional developers to build new towers too early,” he said.
“At this point in the rental cycle, development should not be feasible, but weight of money looking for investment stock is keeping prices high and yields low enough to make construction stack up.”
Current major leasing briefs in the market include from Suncorp, the Australian Taxation Office, the Queensland government and QSuper, though none are planning on taking additional space, according to BIS.
At the same time, Charter Hall and Investa are in the market for a large commitment for their 52,000-square-metre tower at 370 Queen Street with an end value of $650 million, while Mirvac has tendered its 58,000-square-metre 80 Ann Street tower as a possible new home for Suncorp.
Other mooted towers include 62 Mary street, a 38,000 sq m development by QIC, ISPT’s 42,000 sq m Regent Tower at 150 Elizabeth Street and Ashe Morgan’s 39,000 sq m Midtown Centre.
If some of these projects secure commitments, Mr Schilling said there could be well over 100,000 square metres of additional floorspace entering the market in the early 2020s.
“With the amount of vacant stock within the CBD already at over 300,000 square metres, additional construction will only drag out the market recovery further,’ he said.
In its more favourable outlook for the Brisbane CBD, CBRE said the trend post-GFC for businesses to cut space by subleasing or relocating into smaller premises was changing.
“Businesses, in certain industries are now back on the growth path and seeking more office space,” CBRE director James Comino said.