Vacancy rate drops to lowest level in two and a half years
April 24, 2012
Brisbane’s metropolitan office vacancy rate has reached its lowest level in two and a half years, according to new research from Colliers International.
The latest Colliers International Research and Forecast Report for the Brisbane metropolitan office market found the vacancy rate in the fringe fell significantly during the second half of 2011, for the third consecutive period, to 7.6 per cent, its lowest position since January 2009. In terms of actual space, vacancy fell by 13,374sq m to 86,736sq m.
Warwick Wolfe, Colliers International Director of Office Leasing, said the drop in the vacancy rate was largely due to a lack of new supply hitting the market. He said the vacancy rate was expected to fall even further with no new stock coming online until the second half of this year.
“There was only 2953sq m of development completions for the fringe last year, which was significantly less than the annual average for the past five years of 69,526sq m,” he said. “This was the major driver of the sustained tightening in vacancy.
“While leasing activity in the fringe was solid during 2011, net absorption was below trend – for the second half of last year net absorption rose to 14,094sq m, taking the annual result to 21,147sq m, far less than the five year average.
“With the fringe facing a soft development pipeline, it’s likely the vacancy rate will continue to tighten in the first half of this year.
“There will be no major development completions for the fringe prior to July 2012, but during the second half of this year McLachlan & Ann at Fortitude Valley is scheduled to be completed, providing 17,600sq m to the market, most of which is already pre-committed.
“Beyond 2012 the volume of development completions is expected to rise substantially.”
Josh Daly, Colliers International Research Manager and report author, said the Brisbane fringe office market continued to strengthen during 2011, which was reflected in the falling vacancy rate, as well as a noteworthy rise in gross effective rents for secondary space generally and prime space in the inner south.
“Most of the net absorption occurred within the Urban Renewal precinct in Brisbane’s inner north in suburbs such as Fortitude Valley and Newstead, followed by Milton,” he said.
“The majority of space that was taken up during 2011 was A-grade stock, with A-grade net absorption recorded at 15,455sq m, almost three-quarters of the total. Net absorption for B-grade stock was also significant at 8,614sq m.
“Current vacancy is largely comprised of B-grade stock, which makes up 63 per cent of the total, or 55,021sq m. There is also 16,281sq m of A-grade stock and 15,434sq m of C grade stock which is available for lease.
“Most vacant space is located in the Urban Renewal precinct, which accounts for 29 per cent of the vacancy in the fringe, followed by Spring Hill, Milton and the Inner South.”
Mr Daly said leasing activity in the fringe during 2011 was dominated by the energy and resources sector, which accounted for around 40 per cent of the larger transactions.
“Over the past four years, however, the technical services sector has achieved the greatest market share of 30 per cent, followed by energy and resources of 19 per cent,” he said.
Mr Daly said looking ahead, vacancy is likely to fall further during 2012, due to moderate levels of development completions, most of which are pre-committed. After 2012, however, the fringe office market is facing a larger pipeline, with completions expected to reach around 61,600sq m in 2013 and 76,200sq m in 2014. Currently about half of the development pipeline for 2013 and 2014 is pre-committed.
“Our forecasts indicate that by the end of 2012 the fringe vacancy rate may be in the order of six per cent,” he said. “Solid levels of development completions during 2013 are likely to inhibit further tightening in the vacancy rate, but sustained strong occupier demand, led by the energy, resources and technical services sectors is expected to remain a key driver of the fringe office market.”
Hunter Higgins, Colliers International Office Associate Director, said that while net absorption over 2011 in the leasing market was underwhelming, conditions in the investment market were particularly strong last year, evidenced by the sharp rise in sales volumes and tightening bias for yields.
“Sales volumes increased to $545.289 million, the highest on record,” he said. “
This result was largely underpinned by institutional investors, syndicates, and foreign investors.
“The largest transaction by value for 2011 involved HQ North Tower in Fortitude Valley. It was purchased by Cromwell Property Securities Limited for $186 million.
“However, market conditions last year were considerably weaker for smaller secondary assets.”
Mr Daly said looking forward,
tightening vacancy and improving rental growth prospects are likely to have a positive impact on sales volumes and pricing. Indeed, some tightening of both prime and secondary yields during 2012 is becoming more likely.
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