Brisbane CBD braces for difficult times ahead

After a stellar start to the year the Brisbane CBD will have to adjust to the new realities of a COVID-led economic downturn. And it won’t be pretty.

THE Brisbane CBD is bracing for a surge in office vacancies and a slump in construction with the economic impact of the coronavirus pandemic set to hit in the latter half of the year.

While construction continues on major projects, COVID-19 has put many businesses relocation and expansion plans on hold.

An analysis by valuers m3property found office vacancy in the CBD was expected to climb over the next 18 months 100 to 200 basis points.

It found there will also be an increase in sublease space as businesses downsize while landlords will have to offer more sweeteners such as rent free periods and fit-outs to attract tenants.

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Master Builders QLD deputy chief executive Paul Bidwell said while current CBD office tower projects will continue “builders will then have nothing”.

“There are no projects in the wings. The pipeline is empty. There is nothing coming at the end of these existing projects,” he said.

“We are talking about August/September/October when the jobs will run out. Whether that be building houses or big office projects. We’re relying on Government stimulus to help fill that gap because there is no more private sector involvement.”

In the CBD work continues on Queens Wharf, the Midtown Centre and Suncorp’s HQ at 80 Ann St. Also construction has just started on the ATO’s tower on the corner of Wharf and Turbot streets.

An artist's impression of 152 Wharf St, Spring Hill.

However, a raft of big office requirements are now on the backburner because of the uncertainty surrounding COVID-19.

JLL head of office leasing — QLD Adam Barrett said the full impact of COVID-19 on the office market won’t be known for at least three to six months.

“What we do know, is most active tenant requirements prior to COVID-19, have been put on hold for the short term while they reassess how they will use their office space in the future,” he said.

“We are still yet to see any rush of tenants subleasing space, or reducing their footprint significantly.

“For now, most tenants are just focused on their core business and trying to get the staff back into the office physically, not the relocation of their premises.”

Brisbane CBD recorded a total vacancy rate of 12.7 per cent in the Property Council’s January Office Market Report with premium vacancy at 3.2 per cent, the lowest level in eight years, however A-grade at 13.7 per cent was the highest on record.

Brisbane skyline from Brisbane River

Michael Coverdale, m3property’s director of office, believes the market should starting picking up in late 2021.

“We‘re forecasting zero growth in gross face rents and a reduction in effective rents over the coming 18 months. From there we expect growth will slowly increase to what has hitherto been regarded as normal levels with no significant rental growth until 2022 onwards,” he said.

“The long-term fundamentals remain good and we expect the drivers of investment demand to rebound in the second half of 2021, however, we acknowledge the downside risk is uncertainty as to the longevity of the health crisis and its impact on the economy.”

M3property director of research Casey Robinson the extent of any rise in vacancy would depend on a number of factors including potential supply chain issues which may delay projects scheduled for completion in 2021 and 2022.

“Changing work arrangements may also result in structural change to the market, and that includes the very real potential for an acceleration of flexible working practices, which may reduce demand,” she said.

“We also expect limited demand from co-working — as well as education and tourism occupiers – over the foreseeable future, with the result that the overall co-working footprint will come under pressure.

She said, at the same time, a significant number of tenant leasing decisions were expected to be put on hold indefinitely potentially leading to an overall reduction in the tenant pool.

“This is all highly dependent on the economic recovery at global, national, and state levels but the bottom line is we expect no net gain in occupier demand over the next 12 months,’’ Ms Robinson said.