Is Brisbane back?
With Sydney and Melbourne commercial office property very much in demand, investors have been looking at Brisbane as a viable alternative investment option. In this article, we consider the opportunities and challenges of investing in commercial property in Brisbane.
Prices are at historic highs in Sydney and Melbourne, in part due to a strong influx of overseas capital. Yields on recent landmark CBD prime office transactions have been as low as 4.5%. As a result, some investors are looking at Brisbane due to it having a higher comparative yield. As ever, there are wider issues to consider rather than just a simple price based comparison.
Brisbane’s current position
While Brisbane is less than half (45%) of the size of the Sydney office market, it currently has much higher vacancy rates of 15.7% and incentives up to 40%. Sydney and Melbourne are hovering around 6.0% and 6.5% vacancy with incentives of 22% and 30% respectively.
Brisbane’s high vacancy rate can be primarily attributed to the end of the mining boom, and reduction in demand from mining and related services industries. This has resulted in weak tenant demand and an excess of office space.
Additionally, construction of new office space in the Brisbane CBD, particularly the completion of 1 William Street in October 2016, and the accompanying move by government employees into their dedicated 74,800 square metre (sqm) building, has created additional vacancy.
This has led to what can be described as a tenant’s market, with landlords having to compete heavily. Refurbished floor space, upgraded building services, and offering speculative fitouts are all options they have come to rely on. The latter has become increasingly popular amongst sub-1000 sqm tenants – who made up a majority of demand in 2017.