Can the rise in Small Business demand hold up the Brisbane Office Market
Can the rise in Small Business demand hold up the Brisbane Office Market
Brisbane’s commercial leasing market is starting to pick up again as agents reports closing more deals and start-ups moves to top-end office space after a slow 2020. The major capital city has had a rough decade in terms of real growth but in 2019 this looked to be well in the past with business growth and interstate moves by companies south of the border. Then a brutal blow was delivered by the pandemic sending the market (in terms of higher vacancy & lower effective rental) back some years however the sunshine market looks primed once again to bounce back to 2019 levels sooner than the setback inflicted by the GFC.
With a killer virus and a government-mandated stay-at-home order, the year 2020 was accompanied by uncertainty over the future of the traditional office. Local landlords deployed a strategy to resolve this challenge by offering more flexibility, shorter leases and spec fit-outs. This strategy proved particularly effective with brokerage business and companies seeking up to 500 square meters.
The country’s largest office landlord, Dexus, expand its flexible space offering to fit workplace changes that accelerated during the COVID-19 period. Dexus led by Darren Steinberg weathered the disruption to the CBD sector, booking only a slight dip in its 2021 interim earnings while confirming its full-year distributions would hold steady with the previous year’s payout. The office giant signed 27 leasing deals in six months, with 21 being new clients, all of which starts this year.
The leases cover more than 9300sq m across key Brisbane CBD buildings such as The Annex at 12 Creek St, 10 Eagle Street, Waterfront Place and 145 Ann Street. The Annex delivers 7,200sqm of superior office space with premium amenities to support the ultimate work-life balance. It features Featuring a rooftop terrace with views to the Brisbane River and surrounding areas, the building offers a side core configuration to optimise natural light and views.
Matthew Miller, Dexus’ general manager for Queensland, testifies to new and existing office customers committing to longer lease terms. This is a positive signal that businesses in Brisbane are positive about the future. The weighted average term across the new leases was 4.6 years, significantly shorter than the Dexus national office average of 6.7 years. “Most of the new leases were for sub-500sq m fitted suites and spaces, which brought the average lease term down.”
Dexus said 60 per cent of the new clients were trading up from B Grade offices or moving from near city locations. JLL’s head of office leasing in Queensland, James Montague, said inquiry volumes had been steadily increasing. “We are seeing deals that are being done that should have been done in 2020 but were delayed due to uncertainty”
Mr Montague said the street of Brisbane feels busier than last year with more activities and an improved market. “There have certainly been some aggressive terms offered by landlords to fill up vacancies in their portfolio. They have moved quickly to adjust to the new market dynamics.”
Chris Butters, CBRE’s managing director for Brisbane, said the biggest trend had been the increase in inquiries from smaller businesses for quality CBD office space. “There’s been an overwhelming focus on fitted-out accommodation over vacant space,”
He also said that lease terms had reduced to two to three years rather than the usual five years or more. Face rent, however, has held firm but incentives remained elevated.
Apart from shorter leases, most of the incentives revolve around flexibility, such as the ability to upsize or downsize without penalty or being able to modify the fitout.
Research made by the Property Council of Australia revealed Brisbane CBD vacancy rates increased from 12.9 per cent to 13.6 per cent in the six months to January this year because of negative demand. It said there were over 125,000sq m of space due to come online over the next two years and “except for premium, all grades of space have vacancy above 13 per cent”.
Landlords can take some heart from these trends but the true challenge ahead remains lease renewals with large swaths coming due for renewal and the question remains, to what extent will tenants commit in a rapidly changing workforce landscape.
References
- Australia’s biggest landlord to offer more flexible space
by Nick Lenaghan
- Introducing The Annex
by Dexus
- Smaller businesses shift to Brisbane CBD as lease terms loosen
by Martin Kelly
- Do we need a third way of working now?
by Harriet Minter