‘Gravity-defying’ prime Brisbane offices run dry

The Queensland capital’s office market offers the best hope in the country for a recovery. But other markets could follow once capital returns.

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A shortage of prime-grade office stock in Brisbane may emerge in 2024 as the national market contends with the flight to quality.

The River City’s office stock is outperforming the rest of the country and “defying gravity”, according to Herron Todd White commercial director Alistair Weir, citing strong demand and shrinking under-utilisation rates.

In the past 12 months, 71,000sq m of stock has been absorbed in Brisbane, triple the long-term average of about 20,000sq m each year.

“The overall vacancy for Brisbane is now just pushing below 12 per cent,” Mr Weir said. “But if you look into the actual breakdown … we’re now fully in the territory where we’re staring at the potential for an under-supply in premium-quality accommodation. That’s been an extraordinary performance from the highs of about 20 per cent vacancy six, seven years ago.”

Strong pre-leasing in towers under construction – namely Waterfront Brisbane by Dexus and Chater Hall and Investa’s 360 Queen Street – indicate there is a depth of demand, the valuer said. As a result, the rent thresholds for new builds have jumped considerably.

“We have got a few big new buildings in the pipeline, obviously, which have got very strong pre-leasing, but beyond that there will be a period where vacancies for premiums will probably get in very low single digits,” Mr Weir said.

“At the premium end of the market, rents are now firmly sitting up over $1000 per sq m at face rent. The two big new buildings … they’re pushing rents in the $1200 to $1400 range, which is extraordinarily high level.

“It really is just reinforcing the point that providing a next level of office accommodation is really where the big corporates are focused at the moment.”

The Gabba stadium is set to welcome Brisbane Olympics summer games in 2032.

The pandemic accelerated the “flight to quality” trend that had already begun.

Employers are increasingly looking for ways to entice workers back into office, with the Property Council of Australia’s most recent office update revealing a 0.2 per cent lift in vacancy to 12.8 per cent, the highest level since 1996.

National property valuation firm M3 Property has reported face rents have continued to grow gradually through 2023, supported by high incentives.

Prime gross face rents increased by about 10.91 per cent in the 12 months to September to range between $1150 and $1900 per sq m, while secondary-grade stock increased by about 9.68 per cent to between $870 and $1300 per sq m.

M3 Property managing director for NSW Andrew Duguid said Sydney CBD occupiers are after space upgrades. He expects improvements in rents will create a flow-on effect for well-managed assets once capital returns to the market.

“Office occupiers in the Sydney CBD are increasingly seeking quality space as more workers return to the city, with activity also being driven by displaced tenants due to metro redevelopment,” he said.

“The CBD leasing sector is quite active, with relatively high incentives creating the motivation for businesses to move into better-quality office space. Occupancy is increasing year-on-year, and rents are growing. There is positive momentum in select parts of the market.”

Mr Duguid said greater caution and dampened investor demand has caused transaction activity to slowed considerably, with an estimated $1.08bn worth of property changing hands in the year to November, compared to $4.21bn through 2022.

Originally published as ‘Gravity-defying’ prime Brisbane offices run dry