Greenshoots for Brisbane’s office market are now evident

12 July 2018

Brisbane’s office markets are now starting to feel the positive effects of an economic turnaround in Queensland, on the back of nation leading labour market indicators, population and economic growth numbers.

The latest Savills Research has indicated that investors are now more inclined to back the Brisbane story, which is beginning to come alive.

According to Savills Research’s Q2/2018 Office Quarter Time report, Brisbane’s CBD and Fringe markets have seen a flurry of investment activity as investors start to see long-term potential in the sunny state’s capital. Office transactions were close to $1.2 billion in the CBD and just under $1 billion in the city’s fringe office markets in FY18 (for sales above $10 million).

Interestingly, whilst many market pundits were pointing to a tempering of sales activity in Brisbane’s fringe markets, current investment volumes were marginally lower than the record set in FY17.

Peter Chapple, State Director of Capital Transactions QLD said that anecdotal evidence from the ground suggests increased investor interest in Brisbane office assets are likely to boost overall investment volumes further over the remainder of 2018.

“Sales in Brisbane’s fringe office markets were driven by interest from both foreign and domestic private investors driving up demand for assets in the $10 million to $50 million range, whilst domestic institutional investors were driving up demand for larger, more prized prime grade assets.

“We expect this level of interest to increase considerably over the next six months as investors chase capital value growth relative to the other east coast markets,

“The Brisbane turnaround story is now taking shape, there is a genuine sense of improvement in the occupier markets and increased confidence from buyers looking to position themselves to take advantage of this dynamic,” Mr Chapple said.

Yield compression across Brisbane’s CBD and the CBD fringe market were on par, with average A Grade yields falling 50 basis points in both markets.

Shrabastee Mallik, Associate Director of Capital Strategy and Research said that whilst the Brisbane CBD Fringe market recorded no capital value growth in FY18, average A Grade assets in the Brisbane CBD grew 4.4% over the same period.

“There will always be a difference in capital values between the CBD and the Fringe market, however, given the proximity of the Fringe market to the CBD and the ongoing renewal of Brisbane’s fringe office markets, the differences in prices and yields are much less pronounced than in other office markets nationally,” she said.

Whilst rental growth was largely stagnant over the current financial year, there will likely be increases in rents over the next 12-18 months, particularly as larger financial services providers look for more space in Brisbane CBD.

The recentralisation into the CBD, taking advantage of favourable leasing terms means that rental growth will be more pronounced in the CBD compared to the neighbouring fringe markets.

“A Grade net face rents ranged from $475 to $600 per square metre, remaining stable over FY18 in Brisbane CBD, whilst in the Brisbane CBD Fringe office market, A Grade net face rents ranged from $395 to $495 per square metre, recording no change over the same period.

Similar incentive levels across both markets means that lessees are likely to target space in the CBD to take advantage of the amenities offered,” Ms Mallik said.

 
 

Key Contacts

Peter Chapple

Peter Chapple

State Director - QLD
Capital Transactions

Savills Brisbane

+61 (0) 7 3002 8858

 

Shrabastee Mallik

Shrabastee Mallik

Associate Director
Capital Strategy

Savills Sydney

+61 (0) 2 8215 8880