Small tenants expand in Brisbane officesFebruary 28, 2018 / By
The Queensland economy has undergone a transition over the past few years, from a reliance on mining investment to a broader-based growth trajectory. The economic recovery is now reaching maturity, with strong growth and job creation over the past 12 months.
This has led to an improvement in office leasing demand in the Brisbane CBD, with above-average net absorption over the past two years. A key driver of this increased demand has been from the smaller end of the occupier market (tenants below 1,000 square metres). Total net absorption in the Brisbane CBD was recorded at 33,200 square metres in 2017, with small tenants making up over 80 per cent of that occupier demand. This indicates that business confidence is improving in Queensland.
We have analysed this activity over the past 12 months to better understand what is driving the demand. A sample of 88 sub-1,000 square metre leases were recorded in 2017. Figure 1 breaks down this small tenant demand by sector and compares it to the entire CBD occupier market.
The small tenants have been from a broader spread of sectors compared with the entire CBD market. Finance, professional services and legal firms have made up almost half of the space taken by small tenants in 2017.
Figure 1: Sectors: Entire CBD market vs small tenant leases in 2017
* by sqm occupied
Source: JLL Research
When looking purely at new entrants to the Brisbane market, law firms accounted for almost 30 per cent of such demand. An example is Jones Day, the large multinational law firm based in the United States. The firm had been active in Queensland for a number of years, yet were doing this work out of their existing offices in Sydney and Perth. The law firm has now established a permanent presence in Brisbane.
Some of these new entrants began operating in serviced offices previously and now have committed to more permanent space. The recent trend of owners speculatively fitting out floors into smaller suites has encouraged some of these firms to move from serviced offices.
The other source of demand has been from tenants moving into the CBD from the Near City and suburban markets. The differential in effective rents between the CBD and the Near City market has tightened over the past few years. This has encouraged centralisation of tenants due to the relative affordability of the CBD.
Overall, the recent entry and expansion of small tenants in Brisbane is proof that the broad‑based economic recovery is well underway in Queensland. This momentum has the potential to lead to expansion of larger corporate tenants, which has been lacking in the Brisbane market over the past few years.
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