Domestic institutional investors dominate Brisbane metro office market

kimberlyjones

Domestic institutional investors dominated the Brisbane metro office market representing circa 80 per cent of the sales volume for the YoY to December 2018 ($1.06 billion). Leasing activity in the region increased by 60% for the same period with 115,000 sqm in deals recorded, including renewals.

Per the latest Colliers International Research and Forecast Report the positive Brisbane Metro to CBD office yield spreads in the range of 50 to 100bp positions the metro market as an attractive investment option for institutional investors trying to secure high-growth performance assets.

Author of the report Research Manager Karina Salas said: “Participation of private investors into the market is becoming less significant due to the more strenuous requirements to access debt funding and the low yield environment unable to offset the investment risk of small scale investors.”

“We have noted a surge on listing activity over the first quarter this year, supporting a positive outlook for the Brisbane Metro office market in 2019,” said Don Mackenzie, National Director, Capital Markets at Colliers International.

“We anticipate that domestic institutional investors will continue to be the leading buyer group in 2019 as sales of office assets above $100 million dominate, with volumes in 2018 comprising 63 per cent of the total volume compared to 52 per cent in 2017. There is a lot offshore capital sitting behind these domestic institutional investment purchases.

“Average capital values in the A Grade market increased over 10 per cent for the YoY to March 2019 driven by the yield compression and the increase in net face rents.

“Following the RBA announcement of the neutral bias monetary stance in February 2019, we anticipate that the yield compression will continue, although it may slow down,” said Mr Mackenzie.

Leasing market activity performed strongly in 2018, with Colliers International recording circa 115,000 sqm of deals (including renewals) compared to circa 69,000 sqm recorded in 2017.

Per Deloitte Access Economics, white-collar employment is anticipated to increase by about 29,000 jobs in the Brisbane near city area compared to 19,000 jobs in the Brisbane CBD area over the next seven years to 2025. This trend reveals that the Brisbane metro market will experience a higher demand for office accommodation compared to the CBD area.

“We anticipate that the forecast higher demand will support a tightening in metro vacancy rates over the medium term, although this is dependent on the new supply entering the market” said Bo Veivers, National Director, Office Leasing at Colliers International.

“The inner-south office precinct remains as the tightest office market in the region with vacancy rates of 10 per cent for January 2019, with the forecast supply holding steady over the next 12 to 24 months as there are no new developments under construction.

“The largest increase in supply (circa 37,000 sqm of new or refurbished space) will be added to the Urban Renewal precinct over the next two years. This precinct is the fastest growing and preferred location for new developments with the stock nearly doubling in size over the past decade (circa 243,000 sqm of new supply).

“The Urban Renewal precinct provides a well located and affordable option for tenants compared to the CBD, however the current vacant stock of circa 72,500 sqm has reached the highest level in three years, potentially revealing an oversupply in the market, especially in the B Grade market” said Mr Veivers.