Recent rental increases and a decline in office vacancy of nearly two percentage points over the past six months make the Brisbane metro office market the most improved in Australia as reported by the PCA. 

The latest Colliers International Metro Office Research and Forecast report states net absorption reached an 8-year high of circa 32,630 square metres in the first half of 2019. 

The report said that solid tenant demand across the A grade asset class in the precincts of Milton, Urban Renewal and Spring Hill supported the decline in vacancy to 13.8 per cent over the past six months.

At a glance:

• Rental increases and an office vacancy decline of nearly two percentage points over the past six months make Brisbane the most improved office market in Australia as reported by the PCA
• Slight fall in average incentives underpin the annual growth in average gross effective rents of 6.2 per cent to $356 per square metre as at September
• A-grade average gross face rent has increased by 5.6 per cent over the past 12 months

Research author Karina Salas of Colliers International said that take-up had influenced the slight fall in average incentives which underpinned the annual growth in average gross effective rents of 6.2 per cent to $356 per square metre as at September.

“A grade average gross face rent has increased by 5.6 per cent over the past 12 months,” Salas said.

“We are now seeing a boost in new development activity in other precincts outside the Urban Renewal area, with the Mobo project expected to add 17,000 square metres of net lettable area in the Inner South precinct and the Morris Property Group project at 152 Wharf Street in Spring Hill adding 24,000 square metres of fully pre-committed space.”

For a second consecutive year, investment opportunities in the Metro market remain very tightly held, underpinning the downward trend on sales volumes and average transaction price.

The estimated volume of settled sales (above $5 million) has declined to circa $435 million for the year to date, sitting below the long-term average (circa $820 million).

Queensland Director of Investment Services at Colliers International, Sam Biggins, said that even though new opportunities to deploy capital were scarce in the metro middle market sector, Colliers had seen syndicates and private investor purchases in the major suburban office precincts more than double year to date.

“These have reached circa $129 million compared to $66 million of sales recorded in 2018,” Biggins said.

“The buyer groups specifically consist of high-net-worth private investors, syndicators and listed and unlisted vehicles managed by larger asset managers, and they are chasing opportunities in Fortitude Valley, Hamilton, Eight Mile Plains, Milton and the Western corridor amongst others.”

The yield compression trend continues for a sixth consecutive year, with the A grade average yield estimated at 6.58 per cent in September this year compared to 6.93 per cent a year ago.

The report states that Colliers International anticipated further yield compression into 2020 on the back of the substantial weight of capital chasing limited opportunities, and further reductions in the RBA cash rate flowing through into debt costs. 

Bo Veivers, National Director of Office Leasing at Colliers International said that the record tenant demand in Milton had influenced the major vacancy decline for the metro precinct overall. 

He said the Milton office market had been in high demand over the first half of the year, reporting a record net absorption of 19,848 square metres and driving the vacancy rate down to 17.5 per cent, from the historical highest level of 27.9 per cent in July 2018. 

“The influx and relocation of tenants in the Milton precinct reflects the value proposition on offer and the lack of A grade contiguous space with large floor plates within 5km of the CBD.”

Click here to read the full Metro Office report. 

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