Rents in the Brisbane fringe office market are growing amid a climate of limited supply, according to the latest research from Knight Frank.
The Brisbane Fringe Office Market Overview report found that prime effective rents have increased by 8.2 per cent in the year to April 2019 as confidence and tenant activity returned to the space and large prime contiguous vacancies diminished.
Knight Frank Office Leasing partner Shane Van Beest said limited, near-term supply –—with no buildings currently under construction — would support a reduction in the total vacancy and fuel further rental growth over the remainder of the year.
“Accelerating positive net absorption in 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,” Mr Van Beest 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.”
Mr Van Beest said net absorption in the Brisbane fringe office market over the first half of 2019 is forecast to be double the levels seen in the second half of 2018.
“On the ground, the market feels a lot tighter than the figures actually suggest, with strong tenant enquiry and activity,” he said.
“There has been steady take-up throughout the year, with tenants new to the market a welcome boost.”
According to Knight Frank partner and head of commercial sales Christian Sandstrom, the “record investment” in Brisbane’s fringe office market reflects a greater investment in Brisbane as an investment destination.
“In the 2019 financial year, transactions totalled $1.048 billion, and a number of further sales are likely to complete prior to the end of the financial year. The dominance of purchasing activity by domestic funds has continued in the 2019 financial year, with $805.1 million of transactions in the year to date,” he said.
Mr Sandstrom said whilst transaction volumes in the fringe market may have slowed compared to the previous 12-month period, positive investment sentiment has seen demand for securely leased office assets increase.
“The most significant trend we are experiencing is the competition for existing buildings that were earmarked for redevelopment for alternate uses including residential. These are being repositioned by value-add investors to cater for larger immediate tenant requirements that [want] to be accommodated in new projects,” he said.
“Given increased construction costs and financing requirements for significant pre-commitment levels, well-capitalised investors are taking advantage of the countercyclical office environment.”
The report also found that engineering, information technology and construction/property dominated leasing activity in Brisbane’s fringe office market, accounting for more than half of recent transactions in 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,” Mr Van Beest added.
“As such, the fringe market is expected to continue to benefit from increased tenant activity.”