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Savills Research
Queensland
Spotlight
Brisbane Fringe Office
Highlights
 According to the PCA the vacancy


rate in Brisbane’s Fringe was
12.8% as at January 2015
Savills recorded 21,410 square
metres of leasing activity (above
500 square metres) for the 12
months to March 2015
Positive absorption of 29,987
square metres in the 12 months to
December 2014 was reported in
Brisbane’s Fringe
 Savills recorded approximately

$916 million of transactions in the
12 months to March 2015
Funds took the biggest share of
sales by value at 72% in the 12
months to March 2015
April 2015
Savills Research | Brisbane Fringe Office
April 2015
Savills Queensland Team
Research
Director
Paul Day
+61 (0) 7 3002 8860
[email protected]
Capital Transactions
Head of Agency
Anthony Ott
+61 (0) 7 3002 8904
Director
Peter Chapple
+61 (0) 7 3002 8858
[email protected]
[email protected]
Commercial Sales
Director
Robert Dunne
+61 (0) 7 3002 8806
Executive
Greg Woods
[email protected]
+61 (0) 7 3002 8825
[email protected]
Executive
Thomas Fowke
+61 (0) 7 3002 8821
Director
Peter Dodd
+61 (0) 7 3002 8851
[email protected]
[email protected]
Leasing
Executive
Billy Miller
+61 (0) 7 3002 8854
[email protected]
Valuations
State Director
Lawrence Devine
+61 (0) 7 3002 8822
[email protected]
National Head of
Advisory
Neil Murphy
+61 (0) 7 3002 8850
[email protected]
Project Management
Commercial Management
State Director
Ken Ng
+61 (0) 7 3018 6705
State Director
Chris Ainsworth
+61 (0) 7 3002 8831
[email protected]
[email protected]
Savills Queensland
Level 2, 66 Eagle Street
Brisbane QLD 4000
Phone :+61 (0) 7 3221 8355
savills.com.au
savills.com.au/research
2
Savills Research | Brisbane Fringe Office
April 2015
Introduction
The Brisbane fringe office market comprises the five precincts of Urban Renewal (Fortitude
Valley, Newstead and Bowen Hills), Inner South (South Brisbane, West End,
Woolloongabba, Kangaroo Point, East Brisbane and Greenslopes), Milton, Spring Hill and
Toowong and contains approximately 1.2 million square metres of lettable office space.
Office Development
The office development pipeline continues to look strong with more than 110,000 square
metres across five projects either under construction or ready to launch upon sufficient precommitment. These are the major developments in contention but there are some small
developments which fall under the radar and a number of other projects with development
approval but which have been deferred.
The table below shows the projects under construction and those likely to proceed in the
medium term:
Current Brisbane Fringe Office Development Activity
Property
Precinct
NLA (sq m)
Type
Status
Completion
Major Tenant(s)
Kings Gate Office Tower –
K1, Bowen Hills
Urban Renewal
16,595
New
UC
2015
Lend Lease,
Robert Bird Grp
Southpoint, 209 Grey St,
South Brisbane
Inner South
28,000
New
UC
2016
Flight Centre
Joule, 1 Breakfast Creek Rd,
Newstead
Urban Renewal
17,744
New
DA
2017
Tatts Group
900 Ann St
Urban Renewal
18,500
New
DA
2017
CDOP7, Milton
Milton
30,885
New
DA
2017+
Source: Savills Research. UC – Under Construction. DA – Development Approval/Lodged.
Developments are plentiful in the inner city areas at the moment but mainly focussed on
residential apartments. It is difficult for office developments to be viable given the escalating
prices of sites and the weakened current rents for office space.
The office developments under construction and listed above have been in the pipeline for
some time and Joule is the only other development likely to commence in the short term as it will
be owner occupied. The others will need significant pre-commitments before launching.
With the Brisbane CBD in plentiful supply of office space and offering competitive rents, it is
difficult to see any new office development emerging in the fringe markets until excess
supply is taken up.
savills.com.au/research
3
Savills Research | Brisbane Fringe Office
April 2015
Leasing Activity
In the 12 months to March 2015, Savills identified 21,410 square metres of leases (> 500
square metres) in Brisbane's CBD fringe office markets. This is down 70 percent on the 12
months prior, and down on the five year average (62,847) square metres.
The majority of these leases, approximately 36 percent of space leased was in the Urban
Renewal precinct. The largest number of deals occurred in Urban Renewal precinct (5).
Select Brisbane Fringe Offices Leases to March 2015
Date
Property
NLA
(sq m)
Rent
($/sq m)
May-14
K1 – RNA, Bowen Hills#
1,430#
600 G
Robert Bird
Aug-14
22 Cordelia St, South Brisbane
1,395
550 G
HOCA
Aug-14
725 Ann St, Fortitude Valley
538
310 G
HIV Foundation
Sep-14
Kings Row, Coronation Dr, Milton
587
510 G
Labour Solutions Australia P/L
Oct-14
52 Merrivale St, South Brisbane
622
550 G
Urban Circus
Oct-14
449 Logan Road, Greenslopes
562
395 G
State Government
Nov-14
100 Skyring Tce, Newstead
7,500
550 G
Collection House
Jan-15
15 Astor Tce, Spring Hill
540
450 G
SLR Engineers
Mar-15
Kings Row, Coronation Dr, Milton
2,851
495 G
Suncorp Metway
Mar-15
Kings Row, Coronation Dr, Milton
341
510 G
Optimate Pty Ltd
Tenant
Source: Savills Research. # Pre-commitment
Leasing activity in the fringe office markets has fallen away significantly and the last 12
months was the low point of the decade.
That said the question is now when will it get better?
Certainly white collar growth is predicted to gather momentum from this year but it is
unlikely to generate solid demand for additional office space until current tenants fill their
surplus space gained from the downsizing that most firms have done over the past few
years.
So it will probably be 2016 before organic growth will again start to drive demand. In the
meantime, some landlords have turned to accepting short term tenancies for projects or
start up businesses reluctant to commit to leases beyond their first year or two of operation.
Retention of existing tenants is important and landlords choosing to be competitive at
renewal time and who have a good history of attention to problems and maintenance can
get results in that regard.
It is interesting to note that in January 2008, the average asking rent (Gross Face) for CBD
B-Grade was $70 per square metre higher than the average A-Grade in the Fringe market.
By January 2015, some seven years later, the average asking rents were only five dollars
less in the Fringe.
This is reasonable considering the office quality of the Fringe A-Grade office buildings
improved significantly over the past seven years.
However, with the level of incentives currently being offered in the CBD, the average
effective rent in the city B-Grade is now close to $40 per square metre cheaper than the
effective A-Grade rent in the Fringe.
This is the problem facing the Fringe office market.
savills.com.au/research
4
Savills Research | Brisbane Fringe Office
April 2015
Brisbane Office
Fringe Net Absorption (sq m)
Dec-04 to Dec-14
120,000
100,000
80,000
60,000
40,000
20,000
0
-20,000
-40,000
Total Absorption (sq m)
Linear (Total Absorption (sq m))
Source: PCA / Savills Research
As noted in the previous quarter, the upswing in absorption shown in the
chart above seems to conflict with the record low leasing demand over the
last 12 months but this absorption is mainly the take up of space in the
Fringe by the relocating Bank of Queensland, pre-committed more than two
years ago and other smaller tenants in similar circumstances.
Brisbane Office
Total Reported Leased in CBD Fringe (%)
12 months to Mar-15
Finance and
Insurance
48%
IT &
Communication
3%
Wholesale
Retail Mining & Utilities &
Source: Savills Research
Industry 7%
6%
Property &
Business services
27%
Govt & Community
12%
Of the 21,410 square metres leased in Brisbane's CBD fringe office markets
(>500 square metres) in the last twelve months, ‘Finance & Insurance' was
the dominant sector, leasing 48 percent of the stock, or 10,351 square
metres. Similarly, the largest number of transactions (6 transactions) was
through the Property & Business services sector.
.
savills.com.au/research
5
Savills Research | Brisbane Fringe Office
April 2015
Office Vacancy
Brisbane Fringe Office Vacancy – January 2015
Grade
Stock (sq m)
Vacancy (sq m)
Vac % Jan-15
Vac % Jan-14
Urban Renewal
480,040
68,763
14.3
14.2
Inner South
263,946
10,788
4.1
4.3
Milton
234,373
41,105
17.5
14.8
Spring Hill
144,909
25,312
17.5
20.7
Toowong
81,183
8,456
10.4
8.4
1,204,451
154,424
12.8
12.5
Total
Source: PCA/Savills Research
The table above shows the overall vacancy has eased further over the past 12 months to
12.8 percent and is now at its highest since July 2002. Sub-lease space accounts for
almost 16 percent of the vacant space.
Across the precincts, the Inner South is doing the best with 4.1 percent vacancy. Urban
Renewal remains high at 14.3 percent and Milton has eased further to join Spring Hill with
the highest vacancy at 17.5 percent, a level not seen in Milton since the late nineties.
Brisbane Office
Fringe Vacancy by Grade (%)
Dec-04 to Dec-14
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Prime Vacancy
Secondary Vacancy
Total Vacancy
Source: PCA /Savills Research
Some 113,189 square metres of new stock has been added to the Fringe office since the
July 2013 Office Market Report for a net gain of almost 73,000 square metres, while
demand has been weak at a total of 7,146 square metres over the same period.
savills.com.au/research
6
Savills Research | Brisbane Fringe Office
April 2015
Full Floor Availability
Savills’ Fringe Full Floor Availability Report graphically shows buildings in the Brisbane
Fringe on a floor-by-floor basis highlighting which floors are available for lease, now and in
the near future including those under construction and refurbishment. The Brisbane Fringe
report differs slightly from the CBD report in that it monitors buildings with a net lettable
area over 3,000 square metres by size instead of by Grade.
Summary of results from the January 2015 Full Floor Availability Report is detailed below:
Brisbane Fringe Full Floor Availability – January 2015
By Sector
By Type
Total
Urban
Renewal
Inner
South
Spring
Hill
Milton
Toowong
Existing
Development
Total Floors (No)
607
242
122
65
159
19
585
22
Total NLA (sq m)
792,759
369,582
150,544
62,322
186,597
23,714
765,784
26,975
Floors Available
(No)
103
48
14
15
24
2
91
12
Full Floor
Availability(sq m)
114,382
60,749
13,567
13,425
24,231
2,410
100,532
13,850
14.4%
16.4%
9.0%
21.5%
13.0%
10.2%
13.1%
51.3%
Max Contiguous
Floors (No)
8
8
5
4
6
2
8
5
Max Contiguous
Area (sq m)
9,100
9,100
4,584
5,112
4,427
2,410
7,488
9,100
Full Floor
Availability (%)
Source: Savills Research
Brisbane Fringe Office
Full Floors Available (No)
Mar-13 to Jan-15
140
120
100
80
60
106
40
79
105
102
106
104
101
108
108
108
109
115
111
107
98
94
95
94
90
96
103
79
62
20
0
Source: Savills Research
The summary above shows full floor availability has now climbed to 14.4% in the Fringe
precincts for those buildings 3,000 square metres and above. Because this includes new
developments under construction and known space being handed back in the future, it is
an indicator on where vacancy is going over the next 12 to 18 months unless the predicted
jobs growth occurs.
savills.com.au/research
7
Savills Research | Brisbane Fringe Office
April 2015
Sales Activity
Savills have recorded approximately $916 million worth of office transactions (Greater than
$2 million) in the 12 months to March 2015 in the Fringe area. This is up 145 percent from
$373 million in the previous year, and up on the five year average of $521 million. During the
same period 25 properties were sold, up from the previous year of 12, and down on the five
year average of 20.
Select Brisbane Fringe Office Sales to March 2015
Date
Property
Price ($m)
NLA (sq m)
$/sq m
Yield (%)
Apr-14
Cnr Grey & Tribune Sts, South Brisbane
200.62
28,220
7,109
7.63
May-14
55 Little Edward St, Spring Hill
46.00
8,296
5,545
9.16
May-14
152 Wharf St, Spring Hill
13.50
4,600
2,935
Dev
May-14
743 Ann St, Fortitude Valley
9.45
1,823
5,184
9,19
Oct-14
41 Buchanan St, West End
20.00
3,791
5,276
7.63
Nov-14
61 Petrie Tce, Petrie Terrace
143.95
12,900
11,159*
7.75
Nov-14
230 Brunswick St, Fortitude Valley
77.50
15,122
5,125
7.68
Nov-14
555 Coronation Dr, Toowong
33.40
5,591
5,974
9.58
Source: Savills Research. Dev – development. *based on office and retail.
While leasing activity has been subdued, the interest in investment opportunities has been
strong with the highest value of commercial properties traded in the past 12 months than
has been seen in more than a decade.
The appeal of the near city office investments has been heightened by the increasing quality
of the newer buildings in the fringe markets and the limited opportunities available in the
CBD. Competition for product is likely to lead to some slight compression in yields over the
next 12 months despite rising vacancy and soft leasing demand.
Although only sales greater than $2 million are captured for analysis and charting purposes,
it is noted that investors in product below $2 million are becoming increasingly active in the
market, encouraged by the poor return on cash and volatility of the stock market.
savills.com.au/research
8
Savills Research | Brisbane Fringe Office
During the 12 months to March
2015, Savills recorded 25 sales
of office assets in the Fringe
precinct, representing a total
value of $916 million.
April 2015
Brisbane Office
Fringe Office Sales ($m and number)
(>$2m) Mar-05 to Mar-15
$1,000
60
$900
50
$800
$700
40
$600
$500
30
$400
20
$300
$200
10
$100
$0
0
Sales > $2m (LHS)
Sales No (RHS)
Source: Savills Research
Brisbane Office
Fringe Office Sales Buyer Profile (%)
12 months to Mar-15
The 'Fund' purchaser category
was the most active in the
investment market for the year
ended March 2015, purchasing
72 percent of the stock sold (or
$660 million worth of office
transactions). However the
Private Investor category had
the most transactions (10).
Fund
72%
Private Investor
11%
Syndicate
0%
Source: Savills Research
Trust
12%
Developer
Owner Occupier 3%
1%
savills.com.au/research
9
Savills Research | Brisbane Fringe Office
April 2015
Key Market Indicators – December 2014
A Grade
B Grade
Brisbane Fringe
Low
High
Low
High
Rental – Gross Face ($/sq m)
495
575
350
450
Rental – Net Face ($/sq m)
420
455
275
330
Incentive Level – Gross (%)
27
37
35
40
Outgoings – Operating ($/sq m)
50
85
50
85
Outgoings – Statutory ($/sq m)
25
35
25
35
Outgoings – Total ($/sq m)
75
120
75
120
Typical Lease Term
3
10
3
7
Yield – Market (% Net Face Rental)
7.60
8.50
8.75
10.50
IRR (%)
9.00
9.50
9.50
10.50
Cars Permanent Reserved ($/pcm)
200
350
150
275
4,950
6,200
2,600
3,800
Office Component Capital Values ($/sq m)
Source: Savills Research
Outlook
The Fringe office market has to do some more hard yards before the leasing market
improves as it is being overshadowed by the surplus of office space available in the Brisbane
CBD.
Near city markets in Sydney, for example, benefitted when high rents in that city chased
tenants out of the CBD in search of more affordable office accommodation. However, that is
not the situation in Brisbane currently. It is the reverse. Cheap prime and secondary rents in
Brisbane CBD are attracting tenants from the Fringe.
That will change but not until the CBD sees some of that excess office stock taken up.
In the meantime, small businesses in outlying suburbs will be attracted to superior office
accommodation now being offered in the near city markets at price levels below that offered
seven years ago. For those firms requiring greater on-site car parking ratios and better
accessibility for established near city clients, it is a good time to be seeking office
accommodation in the Fringe.
The growing trend of small business owners to buy their own strata office, or have their
superannuation fund buy a strata office for their business, will interest developers that are
sitting on sites.
Infrastructure projects planned by the previous government and under review by the new
Queensland Government have the capability to lift economic activity which will benefit office
markets as will the residential construction surge.
Most of the factors are positive for a lift in economic activity such as the Australian dollar
stabilising below 80 cent US equivalent, international tourism rebounding, interest rates
staying low and predicted employment growth. If some government spending on
infrastructure is added to these, business confidence will rebound.
savills.com.au/research
10
Savills Research | Brisbane Fringe Office
April 2015
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[email protected]
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11
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