Brisbane’s B Grade buildings have often been maligned in the current office market conditions by observers of property.
Yet this office grade represents almost 38% of the Brisbane office market and is the second largest grade category after A Grade at 40%.
The B Grade buildings tend to be the older stock and more often than not, smaller buildings but many are very well located in central positions within the CBD.
By their nature with smaller floor plates, large firms are not always efficiently accommodated but they can certainly suit smaller businesses and start-up businesses looking to be centrally located but still affordable. This is an important role that they play.
Click to view the chart that demonstrates just how affordable these office premises are with average gross effective rent now almost getting back to the levels a decade ago.
In fact average B Grade net effective rents are now at the same level as they were ten years ago, so the only growth has been in the outgoings.
Naturally, these are average rents and there are many better quality B Grade buildings achieving higher rents but there are also a number of ageing stock that have not seen much by way of upgrades over the years.
The question therefore being posed is - are some of these secondary office buildings better suited for conversion to another use?
With B Grade office vacancies now at an all time record high of 23% with no immediate prospects of getting back into single digit vacancy, more owners are likely to consider conversion/redevelopment an option.
B Grade buildings have lost more than 184,000 square metres of tenants over the past 8 eight years and even with a market recovery, it will take a considerable time to get those back.
Some buildings are already committed to conversion such as 80 Albert Street which will be a 5-star hotel and is planned for opening this year.
Click to view the table of secondary buildings earmarked for either conversion or demolition.
One of the interesting developments has been the growing interest in student accommodation. Brisbane is a poor third to Melbourne and Sydney in providing good accommodation for international students in the city. It is little wonder that consequently Brisbane is only getting 15% of the $16 billion per year in export earnings that educating overseas students generates.
There is a development underway at 65 Mary Street by IGLU which will provide 400 rooms and the recent sale of 363 Adelaide Street is reported to be able to accommodate up to 1,000 students but this is only a token in view of the numbers international students now approaching 100,000 in Queensland with the bulk of these in the Brisbane area.
The strategy is clear
For the B Grade office buildings continuing to offer business accommodation in the city, the strategy is clear. Meet the requirements of the tenants.
In the final analysis, Brisbane’s B Grade buildings are, on the whole, a blessing to the CBD as they will provide affordability for the new generation of businesses that will be springing up over the next three year as the economy gets into stride again.