Brisbane metro office market ripe for investors picking

Investors and syndicates are chasing higher returns offered in the Brisbane metro office market with the major precincts experiencing rental increases and office vacancy decline of nearly 2 percentage points over the past six months, making it the most improved office market in Australia as reported by the PCA. 

Colliers International Metro Office Research and Forecast report states net absorption reached an 8-year high of circa 32,630sqm in the first half of 2019. “Solid tenant demand across the A grade asset class in the precincts of Milton, Urban Renewal and Spring Hill support the decline in vacancy to 13.8% over the past six months,” said the author of the research Karina Salas of Colliers International. 

“This has influenced the slight fall in average incentives which underpin the annual growth in average gross effective rents of 6.2% to $356 per sqm as at September. A grade average gross face rent has increased by 5.6% over the past 12 months.

“We are now seeing a boost in new development activity in other precincts outside the Urban Renewal area, with the Mobo project expected to add 17,000sqm of net lettable area in the Inner South precinct and the Morris Property Group project at 152 Wharf Street in Spring Hill adding 24,000sqm of fully pre-committed space,” Mrs Salas said.

For a second consecutive year, investment opportunities in the Metro market remain very tightly held, underpinning the downward trend on sales volumes and average transaction price. The estimated volume of settled sales (above $5 million) has declined to circa $435 million for the year to date, sitting below the long-term average (circa $820 million).

“Even though new opportunities to deploy capital are scarce in the metro middle market sector, we have seen syndicates and private investor purchases in the major suburban office precincts more than double year to date, reaching circa $129 million compared to $66 million of sales recorded in 2018,” said Sam Biggins, Queensland Director of Investment Services at Colliers International.

“The buyer groups specifically consist of high-net-worth private investors, syndicators and listed and unlisted vehicles managed by larger asset managers, and they are chasing opportunities in Fortitude Valley, Hamilton, Eight Mile Plains, Milton and the Western corridor amongst others.”

The yield compression trend continues for a sixth consecutive year, with the A grade average yield estimated at 6.58% in September this year compared to 6.93% a year ago. Colliers International anticipates further yield compression into 2020 on the back of the substantial weight of capital chasing limited opportunities, and further reductions in the RBA cash rate flowing through into debt costs. 
Bo Veivers, National Director of Office Leasing at Colliers International said that the record tenant demand in Milton has influenced the major vacancy decline for the metro precinct overall. 

“Milton office market has been in high demand over the first half of the year, reporting a record net absorption of 19,848sqm and driving the vacancy rate down to 17.5 per cent, from the historical highest level of 27.9 per cent in July 2018. The influx and relocation of tenants in the Milton precinct reflects the value proposition on offer and the lack of A grade contiguous space with large floor plates within 5km of the CBD.”

Flex space operators have also seen significant potential in the Brisbane office market, expanding throughout the Metro area and occupying circa 24,280sqm. “The Urban Renewal precinct is the preferred Metro location for flex space operators due to location, quality and affordability of rents compared to the A grade market in the CBD,” said Mr Veivers. 

“Estimated average A grade gross face rent in the Urban Renewal precinct is about $135 per sqm more affordable compared to the A grade rent in the CBD.

“This supports the estimated Urban Renewal expansion of flex space operators from the current 18,500sqm to circa 24,780sqm by mid-2022. International Workplace Group’s (IWG) premium grade flex-space brand ‘Spaces’ is one of the operators expanding within the precinct after pre-committing to 4,809sqm in the Jubilee Place office development.”
 

Related Experts

Karina Salas

Associate Director, Research

Brisbane CBD

Karina began her professional career in Peru in the areas of credit analysis and banking negotiation, shaping the analytical skills supporting her current portfolio of clients at Colliers International.

During her experience as an Analyst Supervision with APRA and in corporate finance, she has gained experience across many facets of business and project investment including research, feasibility analysis, forecasting, risk management, funding structure and financing.

Her passion for the property sector supported her decision to change careers and invest in the delivery of a portfolio of small development projects for the residential sector. Karina has gained solid experience in the property sector across various investment assets including residential, commercial and industrial.

Throughout her career, Karina has gained a vast knowledge in risk management, project management, finance and property research, making her a valuable asset for our clients in the Brisbane office.  

View expert

Samuel Biggins

Director | Queensland

Brisbane CBD

Sam has more than a decade of experience in managing commercial real estate transactions for institutional and high net worth clients across the Asia-pacific region and has participated in over $1b in transactions in the last 5 years. 

Sam’s role is to provide leadership to the Investment Services business across Queensland. He offers guidance and drives the national initiatives, including Middle Markets, Asia Market engagement, Restructuring Property Services and our Premium Investments team. 

In 2016 he relocated to Colliers’ Brisbane office after 5 years with the firm in Singapore and Hong Kong, where he was responsible for Colliers ‘ANZ’ desk, working across the ANZ and Asian businesses channeling Asian capital into the Australia and New Zealand real estate markets.

Sam is an expert in negotiating cross border transactions having executed deals and mandates for clients in Australia, New Zealand, China, Hong Kong, Singapore, India, Russia and Indonesia.

 

View expert

Bo Veivers

National Director

Brisbane CBD

I have been working in Office Leasing at Colliers International since 2005, focusing on the near city markets and specialising in major back fill, re-positioning and pre-commitment leasing in new developments. In 2017 I was appointed National Director and joint head of leasing for the Brisbane Leasing business at Colliers International.

I strive to add value to my client's assets by providing ongoing recommendations and advice by ultimately putting leasing deals together. I have significant experience and success in both large commercial developments and smaller boutique projects. I am proficient in all facets of office leasing from initial building design through to negotiating the best commercial lease terms for my clients. In addition to developments, I also focus on major backfill opportunities, together with sub-leasing and assigning of existing leases for major corporate and government occupiers.

Currently I am thrilled to be working on Brisbane’s most iconic development, 80 Ann Street on behalf of Mirvac, along with 14 Stratton St on behalf of Silverstone and 72 McLachlan St on behalf of Grocon. Some recent campaigns include the likes of Green Square in Fortitude Valley for ISPT where we leased in excess of 10,000sqm, the subleasing of 900 Ann Street where we leased over 7,000sqm on behalf of Aurizon, Kings Row Office Park where we have leased over 5,000sqm on behalf of Shayher Group in the past 18 months and the successful re-positioning of 8 Gardner Close on behalf of Quintessential Equity.

If you have any questions relating to the Brisbane Office Market or property in general please get in contact with me.

View expert