Is State Final Demand or Gross State Product a better proxy for Brisbane office demand?

February 11, 2015 / By  

At first glance the Queensland economy has performed well during the last few years. The construction of three huge Liquefied Natural Gas (LNG) projects since 2010 has helped to boost business investment in the state. Gross State Product (GSP) grew by 2.3% in 2013 and an estimated 2.5% in 2014. Why then has demand for office space in the Brisbane CBD been so weak if the economy has grown at a reasonable rate?

A look below the headline figures offers some insight into this. State Final Demand (SFD), a measure of the domestic economy which strips out the effects of net exports and inventories, has not seen this level of growth. SFD grew by only 1.0% in 2013 and actually declined by an estimated 0.8% in 2014. Effectively the size of the Queensland economy at the end of 2014 was the same as in mid-2012.

A Comparison of Queensland Economic Growth Measures

Source: Deloitte Access Economics December 2014, JLL Research

This lack of growth in the Queensland economy has been reflected in the Brisbane CBD office market. Demand for office space in Brisbane CBD has struggled during this period with negative net absorption for nine successive quarters. In 2013, -105,800 sqm of net absorption and a further -27,600 sqm was recorded in 2014. As real estate is location-based the performance of the domestic economy (SFD) matters more than GSP.

However, there are now signs that the Queensland economy is starting to recover and there are several key pillars which should boost growth over the next few years.

  • Residential: Residential investment is growing strongly helping to offset falling business investment (linked to the resource sector)
  • Population: Population growth is expected to exceed the national average
  • Tourism: The weaker Australian dollar will encourage an uplift in tourism – both domestic and international
  • Infrastructure: Several large infrastructure projects are planned for Queensland (both public and private). These include AQUIS resort Cairns, BaT tunnel, GC Commonwealth Games infrastructure and the Queens Wharf development.

Queensland GSP is forecast to grow strongly over the next couple of years boosted by the export sector as the LNG projects move into the production phase. However, Queensland SFD is also expected to make a significant recovery reflecting the revival in the state’s economy. Domestic drivers of demand are expected to be positive for the Brisbane CBD office market with JLL projecting average net absorption of 31,700 sqm per annum between 2014 and 2017. This compares with only 2,040 sqm per annum on average over the previous five years.

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