APPD Market Report Article
BrisbaneMay 31, 2022
Flight-to-quality continues to drive tenant decision making
- Brisbane CBD recorded negative net absorption of 1,217sqm over 1Q22, while the Near City market recorded positive net absorption of 581sqm. Large occupiers contributed positively to net absorption in the Near City over the quarter and we recorded the completion of Jubilee Place at 470 St Pauls Terrace in FVP.
- Vacancy continued to decrease in the CBD quarter-on-quarter to 14.9% as it moved closer to the 10-year quarterly average of 14.3%. The decrease over the quarter can partially be attributed to several building withdrawals. In the Near City, vacancy increased from 17.9% to 18.7% and remains significantly higher than the 10-year quarterly average of 15.0%.
The supply pipeline remains significant
- Seven projects remain under construction across the Brisbane metropolitan market, totalling 223,700 sqm. Three of these projects are in the CBD (totalling 149,600 sqm), one of which is anticipated to complete in 2Q22. The remaining four assets are located in the Near City (74,100 sqm), three of which are anticipated to complete over 2022.
- The pipeline remains significant with 739,700 sqm of developments with plans approved, 127,000 sqm with plans submitted and 79,400 sqm of stock proposed or on hold. Majority of this anticipated supply is located in the CBD (62%), with the balance in the Near City (38%).
Rents are beginning to rise while incentives marginally decrease
- Prime gross effective rents (PGER) rose by 1.4% over the quarter to AUD 392 per sqm per annum in the CBD. This is the first rise seen in rents since 1Q20. PGER increased significantly in the Near City, rising by 2.5% to AUD 297 per sqm per annum. Prime incentives have remained stable in both markets in 1Q22, dropping slightly to 42.8% (-1.0 ppts) in the CBD and 43.3% (-0.3 ppts) in the Near City.
- The prime yield range remained stable in the CBD at 5.00%-6.25%. In the Near City, the prime yield range tightened by 25 bps on the upper end, bringing the range to 5.50%-7.25%.
Outlook: Large occupier activity anticipated to grow in 2022
- Confidence in the tenant market is anticipated to remain strong in the short term with lease expiries putting pressure on tenant decision making. Flight-to-quality also remains a major theme in the market and will also continue to drive tenant decision making. Additionally, it is anticipated that large occupier (>1,000 sqm) activity will grow throughout 2022 as white-collar employment increases.
- Landlords continue to increase face rents, which has ultimately contributed to the slight rise in gross effective rents for both Brisbane office markets over the quarter. This confidence is anticipated to continue throughout 2022 with rents likely to marginally increase over the next 12 months.