THE Brisbane CBD office market will benefit from continued growth in Queensland’s economy, according to the latest research from Knight Frank.

The latest Brisbane CBD Office Market Overview found the underlying growth story of Brisbane and Queensland continues, with employment in the office-based sectors to show sustained growth, despite economic growth forecasts moderating due to global factors.

The report finds that Australian and Queensland economic growth is expected to moderate to 2.1 per cent for 2019 before improving slightly to 2.2 per cent for 2020, and thereafter returning to around 3 per cent as the short-term weakness unwinds.

At a glance:

• Employment in office-based sectors to benefit Brisbane’s CBD office market going forward
• Finance, government, resources, co-working and legal drive CBD activity
• Investment volumes grow to sit at $2.86 billion over the year to September, roughly $1 billion higher than last year

The author of the report, Knight Frank Partner Research and Consulting Queensland’s Jennelle Wilson, said that forecast employment growth was expected to be a standout in 2019 with the Brisbane region to record 25,000-plus more jobs in the core office-based industries, according to Oxford Economics.

“While 2020 is expected to be lower, the coming five years will average 10,500 office-based jobs per annum,” Wilson said.

“The key office occupiers of Public Administration, Administrative & Support Services and Professional and Technical Services will dominate employment growth in the medium term.”

The Knight Frank research found tenant demand in the Brisbane CBD office market had remained steady with net absorption positive and vacancy decreasing to 11.9 per cent, the lowest level in seven years, and down from 14.6 per cent a year earlier.

The research found that tenant activity had come from a wide range of sectors over 2018 and 2019, reflecting the strength and diversity in Brisbane’s economy.

The finance and insurance industry accounted for 26 per cent of tenant activity over 2018 and 2019 due to the Suncorp pre-commitment to 80 Ann Street, followed by government and public administration at 22 per cent, and resources and energy at 10 per cent.

Knight Frank Partner and Joint Head of Office Leasing Mark McCann said the largest recent office space commitment in 2019 remained the decision by Rio Tinto to take approximately 20,000 square metres in the Midtown Centre development, which contributed to the high activity for the resources and energy sector.

“Co-working and serviced office tenants are also contributing directly to net absorption, accounting for six per cent of total leasing activity in 2018 and 2019 with WeWork continuing to expand its Brisbane CBD footprint,” McCann said.

“The legal sector has also seen more activity.

“While there are currently no super-tenants seeking space in the CBD, there are requirements in the market, including Sunsuper for up to 16,000 square metres, McCullough Robertson with up to 6000 square metres and the State Government’s potential requirement for more than 25,000 square metres.”

Ms Wilson said with three consecutive six-month periods of positive net absorption achieved, the Brisbane CBD market was settling back into a more standard growth-based pattern of demand.

“For the past 12 months both the CBD and Fringe markets have recorded positive net absorption, ending the period of one market stealing tenants from the other,” she said.

“While cross border moves will continue to occur as tenants’ needs change, with less construction in the Fringe there will be less drift to new Fringe space from the CBD.”

The Knight Frank Brisbane CBD Office Market Overview found supply additions in the market through late 2019 and early 2020, with 54,200 square metres to come online in the next six months, will place a gap on further near-term vacancy falls with vacancy expected to tick slightly upwards to reach 12.5 per cent in January 2020.

It says that from 2020 onwards the vacancy rate will resume a downward trend, however the quantum of the fall will be limited by the significant supply additions of 2021 and 2022, with a further 104,000 square metres of space to come online.

This will keep the total vacancy just above 10 per cent until 2023/2024.

Wilson said effective rental growth had continued in the Brisbane CBD office market, as vacancy had decreased and demand remained positive, with prime and secondary effective rents growing by 1.2 per cent and 5.6 per cent year-on-year respectively to July 2019.

“The majority of uplift is coming from face rents as incentive erosion has slowed,” she said.

“Tenants are motivated to relocate and upgrade where capital costs are mitigated.”

The Knight Frank research found investment volumes in the Brisbane CBD office market are high, sitting at $2.86 billion over the year to September, roughly $1 billion higher than the corresponding period one year earlier ($1.82 billion).

View Knight Frank Brisbane CBD Report 2019 here.

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