Brisbane CBD Q107.05.2012
How would you characterise your market at the moment?
Despite softer than expected tenant demand in the first quarter of 2012, the outlook for the Brisbane office market remains extremely strong. The overall vacancy rate is just 6.1% and the current pipeline of development projects (One One One Eagle Street, 55 Elizabeth Street and 145 Ann Street) are marching towards full occupancy. As a result of Arrow Energy’s recent commitment to One One One Eagle Street, the largest remaining contiguous bank of space within these developments is only 4,500 sqm.
Looking forward, Brisbane’s next major office supply is likely to be delivered to the market in 2015/ 2016. Anticipating further strong demand from the mining and resource sector in the short to medium term, a supply gap between 2013 and 2015/2016 is almost inevitable. This should provide an environment for strong rental growth and incentive compression.
Are there any trends you are noticing among the tenants you are talking to?
Tenants are watching the market with keen interest as a result of the falling vacancy rate. In particular, large tenants are becoming increasingly aware of the potential undersupply of prime-grade multi floor opportunities. In response, several large tenants have activated their office space search as much as 48 months prior to expiry. This is quite unusual in Brisbane.
What do you think will be the biggest influence on your market in Q2?
With the State election now resolved, and Campbell Newman outlining his plan to break up various State departments, it will be interesting to see what market activity is generated over the quarter from this organisational change. One new development could potentially activate construction during Q2 as a result of tenant pre-commitment. Front running candidates include 111 Mary Street, 30 Albert Street, 480 Queen Street and Regent Tower.
What will rents and incentives do in Q2?
Landlords will continue to capitalise on the tightening vacancy rate and push for face rental growth and reduced incentives. Although the growth rate during the quarter will be marginal, total growth for 2012 is predicted to reach 7%. This growth profile should continue to build into double-digit growth in 2013 as a result of limited new supply and strong tenant demand.
What should landlords do to adapt to these market conditions?
The Brisbane office market is moving rapidly towards a demand-led development cycle. Those institutions/developers who can position themselves with a viable scheme that can be delivered between 2014 and 2016, with the required funding or a presale in place, are likely to be rewarded with strong tenant interest.
Head of Leasing, Queensland
Recent Leasing Deals
Market Balance, as at March 2012
Download a PDF of the Brisbane CBD Q112 Market Overview