Vacancy falling in Brisbane’s fringe office market on the back of jobs growth

A new report has found jobs growth is accelerating take-up of space in Brisbane’s fringe office market leading to falling vacancy and further rental growth.

Confidence and tenant activity have returned to the Brisbane fringe office market.

VACANCY is falling and rents are on the rise again in Brisbane’s fringe office market amid jobs growth and a turnaround in tenant activity resulting in tightening supply.

According to the latest research from Knight Frank, accelerating take-up of space is outweighing supply supporting both a reduction in total vacancy and further rental growth.

The Brisbane Fringe Office Market Overview found prime effective rents grew by 8.2 per cent in the year to April 2019 as confidence and tenant activity returned to the prime space and large prime contiguous vacancies diminished.

Knight Frank partner office leasing, Shane Van Beest, said limited near-term supply — with no buildings currently under construction — was expected to result in the continued tightening of the market for the remainder of the year.

“Accelerating positive net absorption during 2019 will outweigh the return of refurbished stock, which is the only stock that will enter the market this year, leading to a fall in total vacancy to 14 per cent in the middle of the year,” he said.

“The absence of any major new supply for the following 12 months will allow vacancy to fall to 11.2 per cent by the middle of 2020.

“Effective rental growth of 4 per cent per year on average is expected over the next two years as conditions improve.”

Office workers at The Gasworks at Newstead, Brisbane.

Mr Van Beest said net absorption in the Brisbane fringe office market over the first half of 2019 was forecast to be double the levels seen in the second half of 2018 at 24,500sq m.

“On the ground, the market feels a lot tighter than the figures actually suggest with strong tenant inquiry and activity,” he said.

“Already contiguous space over 4000sq m or 5000sq m is very hard to find in the near city, which is a sign that the market could tighten up quicker than most people expect.”

“There has been steady take-up throughout the year with tenants new to the market a welcome boost.

“Tenants such as WSP, Southern Cross Media, DXC, Downer Defence, Ladbrokes and CPB

Consortium have taken up space; these were either new to the fringe or consolidations including significant inflow from other precincts.

“Economic growth will be consolidated over the coming years, with Queensland and Brisbane set to outperform the southern states due to population growth, infrastructure investment and exposure to export industries.

“This will result in employment growth, which will assist to accelerate rental demand in the fringe office market, with Brisbane employment within core office industries estimated to grow by 5.73 per cent during the 2018-19 financial year.

“Public administration and professional, scientific and technical services expected to have the greatest growth.”

Employment growth will assist to further accelerate rental demand in the fringe office market.

Mr Van Beest said engineering, information technology and construction/property had dominated leasing activity in Brisbane’s fringe office market, accounting for more than half of recent transactions during 2018 and in 2019 so far.

“The solid employment forecasts, increased infrastructure and major project expenditure plus the uptick in activity within the energy and mining sectors are providing confidence to many business types frequently found in the fringe market, such as engineering and project management and construction.

“As such the fringe market is expected to continue to benefit from increased tenant activity.

Knight Frank researcher and report author Jennelle Wilson said the fringe’s Inner South precinct remained the precinct with the lowest vacancy rate at 10 per cent.

“After being the focus of new supply during 2018, with 33,400sq m of additions, the urban renewal precinct has had by far the strongest net absorption of the fringe precincts at 27,604sq m for 2018.

“This has continued into 2019 with take-up in excess of 10,000sq m in the first half of the year.’

Ms Wilson said with prime tenant demand continuing to consolidate into 2019 it was expected further rmajor tenant requirements would trigger development starts during the 2020 financial year.