October 2017 – Brisbane Fringe Office Market Update

3 October, 2017 / Vanessa Rader and John Dwyer

Brisbane Fringe office market has had a hard start to 2017 with the July 2017 results from the Property Council of Australia highlight an increase in vacancies to 14.4% after some slow reductions over the past couple of years. The last six months of 2016 saw some improvement in sentiment across the Brisbane office markets and as a result we have seen an improvement in business confidence with new tenants active as well as business expansion. This confidence has now stalled in 2017 resulting in the Fringe market showing some slight reduction or stability in rents after the inability to source tenants for known vacations. Currently the average prime gross face rent recorded is $495/sqm with incentives offered at 26.5%, while secondary rents represent a slightly higher incentive level closer to 30% and a gross face rent in the region of $400/sqm. Strata properties however often do not offer these large incentive rates, with the smaller sizes on offer
often attract lesser lease terms and as such incentives in the sub 20% range.

Demand for quality investment grade stock is strong across the whole of the East Coast however activity within the Brisbane Fringe market has been limited resulting in only minor changes to the yield position Sydney and Melbourne has been the main beneficiary of high demand led by overseas investors and low interest rates with record lows achieved across the office, retail and industrial markets. Brisbane yields have lagged these results however during 2017 there has been some good results despite the somewhat poorer economic position of the state. The prime Fringe market
is starting to show signs of improvement in terms of yield with some minor declines occurring yet still within a broad range between 6.85% and 9.00% and still well ahead of the historical
lows. The Secondary market however will take far longer to recover until the fundamentals of the market being reduced vacancies and improving rental position filter through the market. Private investors and local, private trusts and funds remain the major investors active in this market with the flurry of developer activity seen over the past few years now stalling.

 

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