There have been some positive signs emerging in the general economy and commercial office leasing market in Brisbane's CBD over the first half of 2010, although the pace of further improvement will be impeded by new supply and subsequent backfill, the latest Colliers International CBD Office Market Update has revealed.

Matt Kearney, Director of Office Leasing in Brisbane, said the Brisbane office market has improved after a fairly subdued 2009, where the number of transactions were down, due to uncertain economic conditions and diminished business confidence. 

"The Brisbane office market is recovering well with increased tenant demand, which has resulted in a rise in the volume of leasing deals across all grades," he said. 

"Whilst the B grade vacancy still remains relatively high, there is a shortage of large areas of good quality contiguous space within new buildings and existing premium and A grade assets in particular." 

Mr Kearney said businesses are growing again and tenants are indicating a desire to upgrade their office accommodation to attract and retain the best talent in their industry.

"Looking ahead, with improved economic conditions, market sentiment should strengthen, which in turn may generate an improvement in both vendor and purchaser confidence," he said.

The Colliers International report found that vacancy rates are likely to be between 10.5 to 11.5 per cent by the end of 2010, with the volume of existing commercial office, new supply and subsequent backfill, are likely to constrain market growth into 2011.

Mark Courtney, Colliers International Director of Research, who compiled the report, said that although absorption may improve over the balance of 2010, vacancy is likely to peak early in 2011.

"This is due to the combination of 38,600sq m of new supply and a significant volume of backfill," he said. 

"Future white collar CBD employment growth should limit future increases in vacancy."

Queensland employers are reporting their strongest level of confidence since the 2008 September quarter, with white collar employment expected to rise in the remainder of 2010.

Mr Courtney said the overall level of leasing activity remains firm, despite the transaction time per deal having increased.

Major recent office leasing deals in Brisbane's CBD include a 10-year 2,920sq m lease to Dibbs Barker at Central Plaza II, and a five-year full-floor 955sq m lease to Talisman Energy at 10 Eagle Street, both of which were negotiated by Colliers International.

 

"Rents for premium and A grade stock appear to have bottomed over the past six months, with incentives stabilising," Mr Courtney said.

"Current premium and A grade CBD office rental levels are likely to remain stable throughout the remainder of 2010."

Mr Kearney said that in 2007 there were limited vacancies in the office leasing market.

"Subsequently, there was a sharp increase in office development, with nine A grade office buildings constructed in 2009, with the largest being Santos Place at 32 Turbot Street, 400 George Street and 275 George Street," he said.

"This has impacted upon B grade stock, where businesses have been moving to secure new premises, leaving some holes in the market."

Mr Courtney said further divergence between premium and A grade stock and B grade stock values is possible over the next 18 months, as the banks seek to remove underperforming commercial assets from their books.

"This effect may be reinforced as potential purchasers, including international investors and super funds seek out high quality, income producing assets over income producing sites," he said.

"Greater stability throughout the market has seen the return of the acquisitive institutional investors."

"This trend is expected to grow, especially as institutions trade out of secondary assets into modern, prime-grade stock with strong ESD credentials."

Similarly, private investors and owner-occupiers are expected to remain active, albeit constrained by the availability of finance, according to the report.

"Current rental levels are expected to be maintained over the short term, with incentives continuing to be a significant market driver," Mr Courtney said.

For further information please contact:

Susan Epp
Communications Manager | Queensland
Tel: +61 7 3026 3322
Mob: +61 434 573 026
Email: susan.epp@colliers.com