Analysis of the Brisbane CBD office market shows a broadly negative correlation between floor plate size and the vacancy rate. While overall vacancy was 14.2% at the end of the June 2013 quarter, the vacancy rate in buildings with floor plates ≥ 1,500 sqm (which accounts for around a quarter of all stock) was relatively low at 5.5%. Conversely, the vacancy rate in buildings with smaller floor plates (≤ 1,000 sqm) was considerably higher at 19.2%.

The fragmented vacancy profile of the CBD office market poses significant implications for both occupiers and investors. Relatively tight vacancy in prime assets with large floor plates (≥ 1,500 sqm) means there are very few immediate options available for larger corporate occupiers. At the end of the June 2013 quarter, larger occupiers were limited to just four buildings with floor plates over 1,500 sqm. And if an occupier required multiple floors within the same building, options were limited further, with only two assets able to adequately provide such accommodation.

Vacancy in buildings with these larger floor plates (≥ 1,500 sqm) is expected to remain tight. Jones LaSalle forecasts 2013 to be at the trough of the demand cycle, with demand expected to increase moderately through to 2015. Additionally, no new major supply is expected to enter the market over the next two years, with the supply cycle forecast to reach its trough level next year. The next major development will be Daisho’s 58,000 sqm speculative development at 180 Ann Street, which is expected to enter the market in late-2015. The project commenced without a tenant pre-commitment. Other developments currently under construction are DEXUS’ 55,000 sqm project at 480 Queen Street (2016, 38% pre-leased to multiple tenants) and Cbus’ 75,000 sqm project at 1 William Street (2016, 100% pre-leased to the Queensland State Government).

With relatively tight prime vacancy, strategic acquisitions targeting certain floor plate cohorts may provide opportunities for investors. Prime vacancy in buildings with floor plates between 1,000 sqm and 1,499 sqm was a relatively low 9.5%, while the equivalent secondary vacancy rate was 26.0%. There may be an opportunity for investors to acquire and upgrade B-grade assets into A-grade within this floor plate cohort. The wide spread between prime and secondary vacancy makes upgrading assets particularly attractive at this time.

Nevertheless, risks still persist. While we expect some demand to return over the next two and half years, further office rationalisation may continue. Resource sector tenants may continue to postpone or scale back office expansion plans, while the public sector may also continue to reduce its office footprint with further moderate consolidation into existing offices.

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