Challenges and opportunities in the Brisbane office market

The Brisbane office market will be expected to hit a few small bumps in coming weeks, with the occupier market already weak and expectations of further vacancy increases.

However, the slump won’t be expected to last long, with 2016 forecasted to be a ‘hump’ year for Brisbane, with export-led growth and continued strength in the housing and consumer sector will help to recover the state’s economy.

At a property level, the expectation for Brisbane’s CBD vacancy rate is that it will peak at 18 -19 per cent in 2016, with the mismatch in supply and demand expected to continuing pressuring effective rentals.

From a macro level, CBRE’s Head of Research, Australia, Stephen McNabb said, “the worst had passed” for the Brisbane occupier market, after an estimated 35 per cent decline in rents from the 2008 peak.

However, Mr McNabb also said, “Relative pricing for Brisbane is now starting to be more reflective of the local risks relative to Sydney and Melbourne”.

CBRE director, capital markets, Flint Davidson, said that on the investment front, the environment in Brisbane was still positive, despite the challenges of the occupier market.

While conditions were expected to normalise after $3 billion in office property was changed hands on last year’s record, Mr Davidson said activity was still strong, with $350- $400 million in transactions still expected by the end of this year.

Long Weighted Average Lease Expiries and attractive yields have kept Brisbane on the investment radar with up to 100 basis point spread between Brisbane and the Sydney and Melbourne Markets.

However, Mr Davidson said that the investor focus in Brisbane was expected to move forward.

With much of the recent activity involved being development stock, Mr Davidson said that this type of asset had declined considerably.

“We also haven’t seen any forced sales in Brisbane but we do see that coming, with valuations under pressure in the secondary market,” Mr Davidson said.

“It’s quite likely we’ll see some pressure brought to bear – it might be in six month, it might be in 12 to 18 months, but we certainly see it on the horizon.”

CBRE senior managing director for Queensland Bruce Baker said that the Brisbane market was currently being targeted by a “second tier” capital, involving first time Australian buyers from Hong Kong, Singapore and China.

“While we expect that next year could be challenging for some assets from a pricing and valuation perspective, we also expect that the market could surprise on the upside,” said Mr Baker.