Brisbane Fringe Office market Overview (Nov 2016)

Highlights

There is little un-committed new supply on the horizon in the Fringe market. The expiry profile of large Fringe tenants will see the precommitment market begin to build through 2017 for delivery 2020+.

Effective rents have remained soft with increases in face rent eroded by higher incentives. While there is little direct prime space available the competition from the CBD has placed a ceiling on rental levels. 

Offshore investors and unlisted funds/syndicates are the dominant purchasers of Fringe assets. Core assets are highly sought, but rarely available, and investors have also embraced core plus opportunities. 

Key Findings 

  • Total vacancy has stabilised with sub-lease space increasing; however the prime direct vacancy is relatively low.
  • Prime effective rents are expected to begin to grow by 3.0% and 3.4% in the next two years, but growth will be limited by competition from the CBD.
  • Yields have continued to tighten with prime core market yields contracting by a further 15bps over the past year while secondary have fallen by 10bps. 

Supply & Development

The supply environment is benign with the only uncommitted supply, until at least late-2018, coming from refurbished stock. The pre-commitment market is expected to build and formalise more supply 2020+. 

There were no changes to the Fringe market stock during the first half of 2016 with no additions and no withdrawals. This followed H2 2015 where there were net withdrawals of –7,162m² as a number of smaller obsolete buildings were withdrawn for redevelopment.

Following the recent completion of the Flight Centre Headquarters at Grey St, South Brisbane, the second half of 2016 is expected to record the highest net supply to the Fringe for two years. Outside of the fully committed 23,739m² Flight Centre building a further 10,500m² of refurbished accommodation will come on line in 315 Brunswick St, Fortitude Valley. Formerly withdrawn for conversion to hotel & backpacker accommodation, the office space was refurbished after a change in ownership. The State Government has committed to half of the heritage building for an innovation hub.

Refurbished space is expected to provide the only major supply during 2017. The 15,850m² Interchange building at 234 Wickham St, Fortitude Valley will be fully refurbished by the LaSalle Asia Opportunity Fund IV after the Department of Transport’s vacation of the building in late 2016, with completion likely prior to the end of 2017.

Significant new supply is not expected to come to the market until 2018 with the fully committed Aurizon building (18,891m²) at 900 Ann St, Fortitude Valley in the early stages of construction with completion expected in Q1 2018. A likely late-2018 completion is K5 at Showground Hill in Bowen Hills with the 14,000m² building 43% committed by Aurecon and site works underway.

The longer term supply pipeline is beginning to build, as the demand for residential sites is abating, with a number of larger proposals emerging. At this stage these developments are only expected to commence with substantial pre-commitment and are generally a 2020+ proposition. The former Tatts site at 11 Breakfast Creek Rd, Newstead has been purchased by a Charter Hall Office Trust/John Holland Joint Venture with John Holland committing to 12% of the 29,725m² building. Other proposals seeking tenants for medium term development include 301 Wickham St, Fortitude Valley (36,194m²), Green Square 3, Fortitude Valley (c20,000m²), CDOP 7, Milton (19,600m²) and 36-52 Alfred St, Fortitude Valley (32,692m²). 

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