P R E S S R E L E A S E
CB Richard Ellis Pty Ltd
ABN 57 057 373 574
Level 26, 363 George Street
Sydney NSW 2000
DX 10262
T 61 2 9333 3333
F 61 2 9333 3330
www.cbre.com.au
FOR IMMEDIATE RELEASE October 2007
For further information:
Kathryn House
Communications Manager
61 2 9333 3585
61 402 465 440
Opportunities and challenges ahead for Brisbane‘s CBD office market
Brisbane, QLD (October 2007)
Brisbane office rents – already the highest in the country - will continue to show double digit growth until
at least the end of next calendar year, according to new forecasts from CB Richard Ellis.
At a Market Outlook breakfast presentation today in Brisbane, CBRE’s regional director of research,
Kevin Stanley, said Queensland’s strong economy, continued population and employment growth, and
spending on infrastructure and business, would continue to drive the Brisbane office market in the short
to medium term.
However, Mr Stanley warned that there were some potential clouds on the horizon as the strength of the
Brisbane market challenged the classic relationship between vacancy rates and office rents.
‘’As we’ve been reminded recently with news from the US financial markets, risks remain,’’ Mr Stanley
said.
‘’Ironically, one of the biggest we see is capacity constraints. Not enough workers, roads, steel, concrete,
land, etcetera will only push prices higher, increasing inflation and eroding development viability,
investment feasibility and potentially Brisbane’s competitiveness,’’ Mr Stanley continued.
While there appeared to be little question about the strong outlook for the Brisbane CBD office market in
the short to medium term, Mr Stanley said growth could be slowed by two things: the creation of new
product elsewhere and the completion of new office towers in the CBD.
‘’We think Brisbane’s Near City and broader suburban markets, and even Melbourne in a national
context, are serious options as a refuge from high rents or as chance to find enough contiguous space,’’
Mr Stanley said.
On the supply side, Mr Stanley said pent-up demand would fill much of the new space to be completed
in the next CBD office development wave, which included projects such as 275 and 400 George Street,
53 Albert Street, and 32 and 179 Turbott Street.
‘’Very high levels of business spending and population growth are feeding economic activity and leading
to a high demand for white collar workers,’’ Mr Stanley said.
‘’There’s nothing obvious likely to change this in the short term to medium term outlook. Vacancy at the
end of the 2009 supply peak will be just 3.7 per cent and the vacancy trend by then will be clearly
upward,’’ Mr Stanley continued.
But how far vacancies will rise from that point remains unclear. CBRE has built two supply-side scenarios:
one which assumes that all proposed projects proceed and another which takes a more moderate view
on new supply.
Under the worse case scenario, vacancies will rise to about 17 per cent. The more temperate view is that
the vacancy rate will peak at about 10 per cent.
‘’As happens in all development cycles, it’s quite likely some projects wont get up,’’ Mr Stanley said.
‘’We’re confident Premium and A grade stock will continue to outperform the rest of the market in
occupancy and returns. The danger for Brisbane is the older, smaller, secondary stock,’’ Mr Stanley
continued.
‘’Through much of the 1990s, secondary stock severely underperformed the total market in Brisbane.
This is a very real prospect again as a result of this emerging construction cycle,’’ Mr Stanley added.
So what are the opportunities and challenges for Brisbane office investors?
CBRE Office Senior Director Institutional Investments Bill Tucker said total return was the ‘’only game in
town’’ and that was not going to change in the next 12 months (CBRE has forecast that total returns for
Brisbane CBD office property will be above 20 per cent in the next 12 months).
Mr Tucker had three tips for attendees at today’s Market Outlook function: buy a major building in
Brisbane’s Golden Triangle; acquire CBD buildings where leases are expiring in the next two years or
where the property is in need of refurbishment; or sell buildings which are leased to a small number of
tenants on long term leases with six or more years left to run.
‘’My first suggestion might draw some criticism from cynics that I am ‘talking my book’ but these
opportunities don’t come around very often and this one of the few times in the past 20 years that you
can actually buy these assets knowing that rental growth is as guaranteed as it can get,’’ Mr Tucker said.
‘’Prime vacancy rates are close to zero and average rents in the existing prime buildings in the Golden
Triangle range from about 50 per cent to 70 per cent of current market. The earliest a new premium
building is likely to be available is 2011, leaving plenty of time for market views and renewals in existing
buildings,’’ Mr Tucker continued.
Mr Tucker’s second suggestion was to look for buildings where leases were expiring in the next two years
and for buildings in need of refurbishment.
His other recommendation was for investors to seriously consider selling buildings which they had owned
for two years or more, if the property was leased to a single tenant or a small number of tenants on
leases which had six years or more to run and no opportunity for a market review.
‘’The market is still very competitive. Yields are low by historic standards, and the market will price in
some reversion to your rents even though they cannot be achieved for six years or more,’’ Mr Tucker
said.
‘’The verdict is still out on supply, but if the cowboys are found guilty, you might be glad you sold this
type of asset before the jury came in,’’ Mr Tucker concluded.
About CB Richard Ellis
CB Richard Ellis Group, Inc. (NYSE:CBG), an S&P 500 company headquartered in Los Angeles, is the
world’s largest commercial real estate services firm (in terms of 2006 revenue). With over 24,000
employees, the Company serves real estate owners, investors and occupiers through more than 300
offices worldwide (excluding affiliate and partner offices). CB Richard Ellis offers strategic advice and
execution for property sales and leasing; corporate services; property, facilities and project management;
mortgage banking; appraisal and valuation; development services; investment management; and
research and consulting. In 2007, CB Richard Ellis was named one of the 50 “best in class” companies
by BusinessWeek, and one of the 100 fastest growing companies by Fortune. Please visit our Web site
at www.cbre.com |
