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.”