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CBD vs Fringe: the River City’s office market rumble is back on

THE big flow of tenants into the Brisbane CBD from the fringe finally is slowing as the tide in the River City’s office market continues to turn.

New research from Knight Frank shows the fringe market has regained traction over the course of 2018 and once again become competitive with the CBD.

According to its latest Brisbane Fringe Office Market Overview a flurry of activity in the fringe over the past year has led to a significant improvement in its performance.

The report forecasts vacancy in the city fringe will fall from 14.5 per cent as at October 2018 to 13.8 per cent in January 2019, with the strongest improvement coming from the A-grade market.

It also says net absorption is tracking to rebound to more than 18,000sq m in the second half of 2018 from previously being negative, and then range between 13,500sq m and 16,000sq m in the following 18 months due to the restrained supply.

As a result, the vacancy rate is expected to fall to between 12 per cent and 12.5 per cent by the end of 2019.

Knight Frank partner — office leasing Andrew Carlton said the competitive dynamics between the CBD and the fringe had changed during 2018.

“In the current high tenant mobility cycle it is expected tenants will continue to cross markets, however the flow of tenants into the CBD from the fringe in force during 2017 appears to have been arrested in 2018,” he said.

“There has been noticeably higher tenant activity across the fringe during 2018, with negotiated leases for spaces of 1000sq m or above dominated by tenants in the engineering and IT sectors.

Knight Frank office leasing specialist Andrew Carlton.

 

“With the stock of contiguous prime floors already diminishing, steady take-up will see pressure building in prime rents and potentially spur further construction starts in the fringe over 2019 and 2020.

“The recent tightening of lending policies by the majority of commercial banks will limit the speed at which proposed projects can be delivered to the market however.”

The innerwest’s Milton — one of the city’s toughest markets in recent times — is among the fringe precincts leading the resurgence.

Downer EDI (7137sq m), Sandvik (2931sq m), and AIA (1466sq m) have all committed to space in the 26,000sq m vacated by Origin Energy.

In another positive sign, a year after acquiring a 4270sq m office building at 8 Gardner Close, Quintessential Equity has turned around its 77 per cent vacancy into a fully-leased asset.

The space in the building was marketed by Colliers International and Knight Frank.

Quintessential Equity’s general manager of asset management Noah Warren said Milton was back on the radar for tenants.

“Yes, Milton is a tough market, but one of our clients has moved here from the Brisbane CBD to occupy 400sq m of space, due to the accessibility and quality of office accommodation,” he said.

The Knight Frank research showed prime effective rents grew by 4.4 per cent in the year to October 2018, the highest rate of growth in six years, with further increases expected.

“With little imminent supply and the rebalancing of demand between the CBD and fringe, rental growth will be sustained, ranging between 3.7 per cent and 4.5 per cent year-on-year for the next three years,” said Knight Frank partner — research Queensland, Jennelle Wilson.

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