Office Rents Surge in the CBD

 

Brisbane had the strongest rental growth in Asia Pacific over the 12months to the end of first quarter of 2024, according to the latest research from Knight Frank.

Knight Frank’s Asia-Pacific Prime Office Rental Index for Q1 2024 found Brisbane recorded rental growth of 6.8 per cent over the 12-month period,the highest of 23 cities tracked.

Ho Chi Minh City was next at 6.6 per cent, while Perth came in third at 6.3per cent. Of the other Oceania cities, Auckland came in at 4.3 per cent, followed by Sydney (3.6 per cent) and Melbourne (0.1 per cent).

Knight Frank Partner, Research and Consulting Jennelle Wilson said demand for premium and upper A-grade space – or best in class assets –continued to drive prime rental growth in Brisbane’s CBD office market.

“Conservatism due to slower economic growth and cost pressures is expected to moderate rental growth during 2025 before the inherent lack of new supply will see rents accelerate again from 2026 and 2028,” she said.

“The total vacancy rate is forecast to fall to 9.7 per cent by January 2025,down from 11.7 per cent in January 2024, due to a lack of supply and ongoing tenant demand through the year, before increasing again in response to new supply.

“However, the lack of new supply between 2026 and 2028 will support vacancy falling again to below 9 per cent with the prime market to become very tight, particularly for contiguous space.”

Knight Frank’s Brisbane CBD Office Market report provides further evidence of the strong rental growth in the office market, finding average prime gross face rents were at $907/sq m in the 12 months.

Prime effective rents are forecast to grow by a further 5.7 per cent over the remainder of 2024, and prime face rents by an average of 6.1 per cent in the five years to 2028.

Prime incentives now average 39 per cent, falling from 40 per cent in the past six months, and are predicted to fall to 38 per cent over the next two ears before plateauing.

Knight Frank head of office leasing Queensland Mark McCann said the Brisbane CBD office market was supported by strong tenant demand over the past year, leading to significant rental growth.

“With no new prime supply since 2021 and more than a year before uncommitted new space is delivered, which is likely to be limited, larger tenants are increasingly commencing the process to secure their space well ahead of expiry due to supply constraints,” he said.

“Tenant demand for the CBD has been broad based over the past 12months, but the most active sectors have been professional, scientific and technical services, and government.

“The importance of the workplace to attract and retain staff plus maintain a dynamic and highly attended office remains of key importance to both large and mid-tier tenants.

“Top and mid-tier professional firms are increasingly locking in future premises decisions and taking advantage of the relatively greater choice on offer now than there is expected to be in the next three years.”

Article: Courier Mail, Chris Herde (24 May 2024)