Small tenants plugging Brisbane CBD vacancy gaps

Last year small tenants accounted for 25,000 square metres of take up in the city, and another 12,000 square metres in the first quarter of 2017, compared with a long-term annual average of about 5000 square metres.

Adam Barrett, the head of office leasing in Queensland for JLL, said small tenants had upgraded, taking advantage of the attractive rents in the prime grade assets in the CBD.

The Australian Institute of Company Directors was one of those to move, shifting from 600 square metres in a secondary tower to 1000 square metres in the premium quality Riverside Centre.

Dexus has created small offices in its tower, 10 Eagle Street, in the Brisbane CBD. Photo: Glenn Hunt

Other small businesses have taken advantage of a surge in the creation of ready built office suites, fitted out by the landlords on speculative basis.

In the past, small tenants were responsible for their own fitouts in what was a costly, time consuming and management intensive process. When landlords build the suites, the incentives are fewer but new business can move straight in, plug in the technology and recommence work.

“It makes it more attractive for tenants because they don’t have to drive the process themselves and take away from core business,” said Mr Barrett.

The suite strategy was pioneered by the DEXUS Property Group, which also used the concept in Sydney. DEXUS is the institutional owner with the largest exposure to the Brisbane CBD but at December 31 had a vacancy rate of just 3.1 per cent in its Brisbane towers.

Over the past four years DEXUS has created 30 small office suites – converting 8580 square metres of space – at 12 Creek Street, 10 Eagle Street and Waterfront Place. Twenty-two have been leased and DEXUS is planning to create another 10.

DEXUS said the suites provided flexibility for customers, so they can grow within the building, and the roll out has halved the time taken to execute a lease and move in.

“Its not a cookie-cutter approach,” said a DEXUS spokesman. “When we carve up a whole floor we would vary the design across the suites so our customers have a bespoke feel to their space.”

Other landlords have also seen the opportunity. Today more than 14,000 square metres of space in the city has been, or is being, reworked into speculative office suites for smaller business, according to JLL.

The Cromwell Property Group has created small offices on spec in its 200 Mary Street tower and recently gained Equis FG, an investor and developer of renewable energy, for a 124 square-metre suite. Mirvac has created new fully fitted out offices at 410 Ann Street with Equate Technologies, formerly located on the fringe of the city, one of the latest to sign up, for a 200-square-metre suite.

Caden Office Leasing negotiated the deals, with Savills, in the case of Equate Technologies.

Caden director David Prosser said demand for part-floor “fitted space” was reasonably buoyant, particularly from boutique professional services firms.

He said many landlords had delivered fitouts on spec to create a stronger level of engagement with tenants, to improve the inspection experience, to provide quicker relocations and to allow tenants to take up space on lease terms of less than five years.

“With so many newly fitted out options now available, smaller space occupiers will often only inspect fitted space,” Mr Prosser said. “They don’t see the value of investing the time in co-ordinating a fitout when many landlords have already done the hard work for them.”

However, he warned that not all landlords had created the right spec fitouts. “Some landlords have under invested on finishes… others have simply chosen the wrong design, and others have delivered spaces that are too big.”

“As more and more fitouts are delivered on spec, the quality of finishes, and the general presentation of tenancies is improving all the time,” he said.

Tenants should note that the large lease incentives don’t apply to the office suites because the landlords have already spent the money on the fitout.

The creation of office suites specifically tailored to small business has become particularly important for the landlords of B-grade office towers.

While the vacancy in premium grade office towers declined in 2016, the empty space increased in the secondary class, B-grade and C-grade buildings, with about 20 per cent of those sectors empty at the close of 2016.

“Landlords of secondary grade office space are understanding the importance of offering quality speculative fitted out space as a means of attracting tenants,” wrote Colliers International research manager, Helen Swanson, in the Brisbane CBD Office, First Half 2017, Research & Forecast Report.

The result, according to Colliers, has been a move to the city by a number of tenants previously located on the fringe of the CBD, accompanied by an increase in face rents, the first since June 2012, in fourth quarter of 2016.

However the surge in small tenant activity is not enough to make a big impact on the city’s high vacancy rate.