Brisbane Commercial Market Update - Q3 2018

After reviewing the recently released NAB Commercial Property Survey and JLL Market Overview for Q3, here are some of the key points for the Brisbane commercial market.

• The Brisbane CBD vacancy rate has decreased by 0.5% in Q3 2018.
• No new supply was added to the CBD market in Q3 2018.
• New CBD supply that is currently under construction includes 300 George St, 12 Creek St, 80 Ann St, and 262 Adelaide St.
• Leasing demand in the CBD is expected to improve over the short-term driven by sectors including tourism, education, and professional services.
• CBD prime yields remained stable at 5.25% – 6.75%. CBD secondary markets recorded tightened yields of 5.75% – 7.75%. Yield compression has been witnessed over the past 12 months as a result of robust domestic and foreign investor demand.

• Brisbane Fringe vacancy fell slightly to 15.2% as a result of strong occupier demand for fringe assets.
• Vacancy in Brisbane Fringe is segmented due to tenants showing preference towards specific precincts.
• No new supply was added to the Fringe market in Q3 2018.
• Fringe supply is expected to slow as landlords try to secure leases for existing stock.  Landlords have preferred to increase incentives rather than reduce face rents in order to attract tenants. Incentives remained at a cyclical peak of 38.5% (46 months’ rent free over a 10 year lease).
• Fringe prime and secondary yields tightened over the quarter representing strong demand and limited purchasing opportunities. Prime yields dropped to 5.75% – 8.00%. Secondary yields also dropped to 6.25% – 8.75%.

So where is the Brisbane commercial market headed?

• Looking ahead, the biggest risks facing commercial property investors over the next 12 months are the changing bank risk appetite, increased debt funding costs, and domestic/international political uncertainty.
• The expected forecast for the overall QLD office market is that it will move from “over supply”  to “neutral” in 3 years time.
• The expected forecast for the overall QLD retail market is that it will remain “somewhat over-supplied” over the next 3 years.