Activity in the Brisbane Strata office market has remained relatively strong in 2014 despite the softening of the broader Brisbane CBD market. Vacancy across the total CBD is at record highs of 14.7% while Strata vacancies broke new ground in July, however, there are signs of improvement this month. Investment demand is subdued and leasing activity is limited bringing new highs to incentives. Despite this, capital values have been maintained and broader yield levels have compressed.
Brisbane CBD has a large established strata market. Over the past seven years, there has been a high volume of strata conversions, bringing the total count of strata office to 25 buildings with a total are of approximately 91,133sqm. Volumes of transactions have fluctuated pending the addition of stock brought to market. In the last three years the level of activity has fallen in line with the decrease in the broader Brisbane CBD market sentiment. In first ten months of 2014, a total of $13.19 million has transacted representing just 16 sales, with 19.8% representative of retail stock. This result is in line with the same time frame of 2013 and looks to buck the trend of downward moving sales activity since 2011. The volume of sales have fallen 47.6% between 2011 and 2013. With the waning market conditions it was expected a recovery in transactions in 2014 would be unlikely; Despite this investment, demand has continued during what is best described as difficult market fundamentals.
“Vacancy across the total Brisbane CBD is at record highs of 14.7% while Strata vacancies broke new ground in July 2014, growing to 11.3%. Encouragingly, the strata market is showing signs of improvement as vacancy levels come back to 9.0% this month.”
Despite the overall negative market sentiment for the broader Brisbane CBD office market, the strata market has remained relatively steady in terms of capital values. The range in values is a little narrower during 2014 due to the smaller pool of transactions, currently ranging between $4,100/sqm and $7,200/sqm. The average rate of $5,600/sqm represents a 5.5% uptick on last year although still 2.6% less than the high achieved in 2011. Overall commercial capital values have shown good growth over the longer term with the average value increasing on average 5.4% per annum over the eight years recorded. This value is indicative of the commercial office space on offer, however retail assets have recorded values in the $10,500 to $12,500/sqm range.
The Brisbane CBD strata market has a strong owner occupier profile. This has resulted in vacancy levels in this segment of the market outperforming the broader Brisbane CBD market. Vacancies in the strata market has increased in the last year from 5.0% in July 2013 to 9% in July 2014. This growth in vacancy has moved faster than the total Brisbane CBD market which has moved from 12.8% to 14.7% over the same time frame. Despite this, the overall trajectory of vacancy over the three year period has not been as steep as the total market, given the similar vacancy factor in July 2012 of 7.8% for Strata and 8.2% across the total market. More recently our analysis for the month of October 2014 has shown an improvement in total strata vacancy. A reduction of 130 basis points has seen this segment at a vacancy level at 9.0% closer aligned to the three year average rate of just over 8%.