1. travel
2. tourist destinations
3. australia and new zealand

Savills Research
Queensland
Spotlight
Brisbane CBD Office
Highlights
 According to the Property Council


the vacancy rate in the Brisbane
CBD was 15.6% at January 2015
Savills recorded 95,784 square
metres of leasing activity for the
12 months to March 2015
Negative absorption of 33,140
square metres in the 12 months to
January 2015
 Savills recorded approximately


$705 million of transactions in the
12 months to March 2015
Leasing demand is significantly
down on historic averages
The CBD property market
continues to experience a high
level of interest from investors of
all categories
April 2015
Savills Research | Brisbane CBD Office
April 2015
Savills Queensland Team
Research
Director
Paul Day
+61 (0) 7 3002 8860
pday@savills.com.au
Capital Transactions
Head of Agency
Anthony Ott
+61 (0) 7 3002 8904
Director
Peter Chapple
+61 (0) 7 3002 8858
aott@savills.com.au
pchapple@savills.com.au
Commercial Sales
Director
Robert Dunne
+61 (0) 7 3002 8806
Executive
Greg Woods
+61 (0) 7 3002 8825
rdunne@savills.com.au
gwoods@savills.com.au
Office Leasing
State Director
John McDonald
+61 (0) 7 3002 8847
Associate Director
James Seymour
+61 (0) 7 3002 8859
jmcdonald@savills.com.au
jseymour@savills.com.au
Valuation & Consultancy
State Director
Lawrence Devine
+61 (0) 7 3002 8822
ldevine@savills.com.au
National Head of
Advisory
Neil Murphy
+61 (0) 7 3002 8850
nmurphy@savills.com.au
Project Management
Asset Management
State Director
Ken Ng
+61 (0) 7 3018 6705
State Director
Chris Ainsworth
+61 (0) 7 3002 8831
kng@savills.com.au
cainsworth@savills.com.au
Savills Queensland
Level 2, 66 Eagle Street
Brisbane QLD 4000
+61 (0) 7 3221 8355
savills.com.au
savills.com.au/research
2
Savills Research | Brisbane CBD Office
April 2015
Introduction
The Brisbane CBD office market comprises around 2.2 million square metres of
lettable space. Of this, Premium Grade accounts for around 9 percent of office space.
The A Grade quality offers 40 percent of space and is now the largest category with B
Grade accounting for 38 percent. C and D Grades offer the balance 13 percent.
Brisbane has the highest percentage of secondary office stock on the eastern
seaboard at 51 percent. Provided the Property Council of Australia does not conduct
a re-grading exercise in the next two years, that ratio will change as the new stock
under construction enters the market, taking prime office stock up to 53 percent.
Office Development
Construction continues on the three office buildings shown below and at this stage
completion times are likely to be the fourth quarter 2015 for 180 Brisbane in Ann
Street and the first quarter of 2016 for 480 Queen Street and the third quarter of 2016
for 1 William Street.
In regards to pre-commitments for these office buildings, 480 Queen Street has been
very successful in attracting prospective tenants with only around 25 percent left to
fill. The 180 Brisbane development has secured the Commonwealth Bank as an
anchor tenant while 1 William Street is under a head lease commitment from the
Queensland Government.
The only other likely significant office development to commence during this
construction cycle is the Shayher Group’s 300 George Street which is a proposed
three-tower development of hotel, residential and office with accompanying retail. It is
presumed it will be a staged construction with the office tower not entering the
market until 2018 at the earliest
These developments are shown in the table below:
Current Brisbane CBD Office Development Activity
Property
Precinct
NLA (sq m)
Type
Status
Completion
Major Tenant(s)
180 Brisbane
Uptown
58,966
New
UC
2015
Commonwealth
Bank
480 Queen Street
Financial
55,000
New
UC
2016
BHP
1 William Street
Government
75,000
New
UC
2016
State Govt
300 George Street
Legal
58,000
New
DA
2018+
Source: Savills Research. UC – Under Construction. DA – Development Approval/Lodged *Site reported for sale
The other approved development proposals of The Regent in Elizabeth Street and the
Brisbane Transit Centre at 159 Roma Street, which had its DA extended to December
2015, remain on the radar but are unlikely to proceed in the current cycle.
The previously reported 550 Queen Street site has had a new development
application submitted for a residential tower and the office component of the Vision
site in Mary Street appears destined for a hotel development.
The only other new office space to enter the market this year will be a small retail
development at 155 Queen Street which will add a little more than 2,000 square
metres and some created office space in the Broadway refurbish project which could
also add a similar amount of office space.
There have been other sites mooted for office developments but at this point in time,
the prospects noted above have development approval and are the most likely to
proceed in the medium term.
savills.com.au/research
3
Savills Research | Brisbane CBD Office
April 2015
The following chart includes mooted supply out for 5 years.
Brisbane Office
CBD Forecast Gross Office Supply by Type (sq m)
2014 to 2018
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
-20,000
-40,000
2014
Source: Savills Research
2015
2016
Precommitment
New
2017
Mooted
2018
Withdrawal
Backfill
The approximately 15,000 square metres shown as negative supply in 2014 refers to
the withdrawal of 363 Adelaide Street as office space now it has been sold and
conversion to student accommodation is proposed. This space will not be removed
from the Property Council’s vacancy figures until the mid-year report.
After negative white collar employment growth in the CBD in 2013 and a flat 2014,
there remain predictions of improved employment growth through 2015, however, it is
known that many firms have the capacity within their tenancies to add employees
without the need for additional office space.
Leasing Activity
In the 12 months to March 2015, Savills identified 95,784 square metres of leasing
activity (> 500 sq m) in the Brisbane CBD. This is down 33 percent on the 12 months
prior, and down on the five year average (117,439 square metres). The majority of
these leases; (approximately 62 percent of space leased) were in the Financial
precinct.
The table below shows selected leases over the last six months.
Select Brisbane Office Leases to March 2015
NLA
(sq m)
Rent
($/sq m)
200 Creek St, Brisbane
411
525 G
Umow Lai
Nov-14
71 Eagle St, Brisbane
700
910 G
Bank of Communications
Nov-14
111 Eagle St, Brisbane
1,100
851 G
Colliers
Jan-15
239 George St, Brisbane
2,619
570 G
City Beach
Jan-15
295 Ann St, Brisbane#
2,500#
360 G
Runge
Jan-15
143 Turbot St, Brisbane
1,406
520 G
Pragmatic Training
Jan-15
110 Eagle St, Brisbane
1,128
475 G
Impact English
Jan-15
201 Charlotte St, Brisbane
850
550 G
Guardian
Mar-15
410 Ann St Brisbane
800
525 G
Chorus Call
Mar-15
10 Eagle St, Brisbane
623
700 G
Robert Half Recruitment
Mar-15
111 Eagle St, Brisbane
464
850 G
Taishin International Bank
Date
Property
Nov-14
Tenant
:
Source: Savills Research, #sub-lease
savills.com.au/research
4
Savills Research | Brisbane CBD Office
April 2015
Leasing activity has been subdued, particularly in the first half of last year. The start
to this year has been better than in the previous two years and there are some
grounds for this to continue to improve as firms take advantage of the favourable
enticements in the market.
It is interesting to note that tenants are taking the opportunity to seek improved office
accommodation during the past three year period with Premium grade seeing around
49,000 square metres taken up, A-Grade losing some occupied space but only just
under 6,000 square metres while the secondary grade office space has lost around
133,000 square metres of tenancies, sending the B-Grade office vacancy, in
particular, to 23 percent.
Brisbane Office
CBD Net Absorption (%)
Dec-04 to Dec-14
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
Total Absorption (sq m)
Linear (Total Absorption (sq m))
Source: PCA / Savills Research
Perhaps the worst is now over for the office market in the CBD, in regard to organic demand,
as the employment market is set to start a recovery phase, however, there are still some backfill
and sub-lease space from lease tails to emerge as the new office buildings start to enter the
market from the third quarter next year.
There is also a stated desire for the Queensland Government to reduce some of its office
accommodation in order to reduce costs and it remains on their agenda to seek greater efficiency
in their office space utilisation. Considering the public sector account for around 30 percent of the
CBD’s office space, this can have a significant impact on the office market.
Of course the counter for this is the proposed demolition of government office buildings in the
Queens Wharf precinct which will take out some 60,000 square metres of secondary office space
with the displaced workers going mainly to 1 William Street towards the end of next year. This is
likely to happen despite the new government undertaking a review of the plans.
Rents are likely to remain competitive with high incentives prevailing for at least the next 18
months across all grades until the new office space is absorbed into the market. However,
a growing differential between A-Grade rents and B-Grade rents is then likely to occur as the
A-grade vacancy starts to tighten.
It wasn’t that long ago that average B-Grade rent was around 80 percent of the average A-Grade rent.
That has eased to around 70 percent currently and likely to fall further.
savills.com.au/research
5
Savills Research | Brisbane CBD Office
April 2015
Brisbane Office
Total Reported Leased in Brisbane CBD (%)
12 months to Mar-15
Property &
Business services
40%
Govt & Community
36%
Finance and
Insurance
12%
IT &
Communication
Mining & Utilities &
1%
Industry
Source: Savills Research
8%
The Property & Business services sector was the dominant sector, leasing 40 percent
of the space taken. Similarly, the largest number of transactions was in the Property &
Business services sector which conducted 7 transactions.
Office Vacancy
The Property Council of Australia records the overall vacancy at 343,313 square
metres or 15.6 percent at end of December 2014, a further increase from the 14.3
percent recorded 12 months earlier and a new record high since the Property Council
commenced monitoring office stock in 1990. Of this vacancy, sub-lease was 48,353
square metres or 2.2 percent, down from the record high of 2.6 percent at the end of
June last year.
Brisbane CBD Office Vacancy – January 2015
Grade
Stock (sq m)
Vacancy (sq m)
Vac % Jan-15
Vac % Jan-14
Premium
204,056
18,651
7.3
9.7
A Grade
880,133
97,616
9.0
7.8
B Grade
827,161
190,135
23.0
18.7
C Grade
221,596
26,806
12.1
12.6
D Grade
60,857
10,105
16.0
16.1
2,193,803
343,313
15.6
14.3
Total
Source: PCA/Savills Research
The deterioration in vacancy rates has been felt the most in the B Grade office stock
which is now 23 percent, including a sub-lease vacancy of 3.1 percent, following the
fifth consecutive six-month period of negative absorption which now totals some
133,000 square metres.
The discussion continues over B-Grade and how to ease vacancy. The Property
Council has taken an active role in seeking possible solutions to what appears to be a
decade or more of double digit vacancy.
Certainly infrastructure charges concessions are helpful, particularly for assisting
conversions to residential, vertical retirement and student accommodation. The Lord
Mayor recently announced an easing of these charges for student accommodation
within a specific radius of the CBD. This is a good start.
savills.com.au/research
6
Savills Research | Brisbane CBD Office
April 2015
It is also considered that the current easing of secondary rents and attractive
incentives will entice universities and education houses to further consider city
campuses, as has happened in Melbourne where it is recorded that some 220,000
square metres are dedicated to the education industry.
Brisbane Office
CBD Vacancy by Grade (%)
Dec-04 to Dec-14
25%
20%
15%
10%
5%
0%
Prime Vacancy
Secondary Vacancy
Total Vacancy
Source: PCA / Savills Research / PCA
The chart above shows vacancy in Prime and Secondary office grades over the past
11 years. Secondary vacancy has now reached a record high, just tipping 20 percent
and within that category, B-Grade vacancy is 23 percent following a loss of occupied
space of around 133,000 square metres over the last three years.
Savills modelling suggests that overall vacancy has not yet peaked and is likely to go
higher as the new stock enters the market and possibly remain in the range 14
percent to 15 percent for next few years unless some significant stock withdrawals
occur during that time.
Vacancy in the prime office stock is likely to be significantly below that range.
savills.com.au/research
7
Savills Research | Brisbane CBD Office
April 2015
Full Floor Availability
In Savills Prime Full Floor Availability Report, the state of the leasing market is
assessed in a different manner to standard vacancy surveys. The report graphically
shows each Premium and A Grade building in the city on a floor-by-floor basis
highlighting which floors are available for lease, now and in the near future, in each
building including those under construction and being refurbished.
Results from the February 2015 Prime Full Floor Availability Report are detailed below:
By Grade
By Sector
Total
Premium
A Grade
Financial
Uptown
Government
Retail
Legal
Total Prime Floors (No)
950
142
808
420
190
142
92
106
Total Prime NLA (sq m)
1,241,554
205,736
1,035,819
522,605
229,190
230,725
127,802
131,233
Prime Floors Available (No)
175
23
152
98
61
12
-
4
Prime Full Floor Availability (sq m)
212,205
33,731
178,474
114,893
80,296
12,242
-
4,774
Prime Full Floor Availability (%)
17.1%
16.4%
17.2%
22.0%
35.0%
5.3%
0.0%
3.6%
Max Contiguous Floors (No)
15
10
15
11
15
3
-
4
Max Contiguous Area (sq m)
19,300
13,868
19,300
13,868
19,300
3,147
-
4,774
Source: Savills Research, 2015
The table above summarises the number of prime floors available for commitment as
175 full floors as at March 2015. In October last year, the three buildings of more
than 90 floors currently under construction were added to the report, causing the
jump in available floors, however, with the pre-commitments now in place, less than
26 percent of the floors under construction remain available.
The extended version of Savills Full Floor Availability report for March 2015, which
includes available full floors in B Grade also, adds another 174 B Grade floors to
record a total of 359 full floors of vacancy throughout the CBD. It is encouraging that
this is a decrease from the peak of 401 full floors available in January 2014 but the
numbers remain persistently high.
The overall prime availability is shown as 17.1 percent in the table above, suggesting
that total vacancy has further to climb.
savills.com.au/research
8
Savills Research | Brisbane CBD Office
April 2015
Sales Activity
Savills have recorded approximately $705 million worth of office transactions in the 12
months to March 2015 in the Brisbane CBD. This is down 72 percent from $2.496
billion in the previous year, and down on the five year average of $1.199 billion.
During the same period 12 properties were sold, down from the previous year of 15,
and down on the five year average of 14.
Selected sales over the past 12 months are shown in the table below:
Select Brisbane Office Sales to March 2015
Date
Property
Price ($m)
NLA (sq m)
$/sq m
Yield (%)
Apr-14
70 Eagle St, Brisbane
122.70
11,476
10,692
6.35
Apr-14
95 Edward St, Brisbane
5.20
816
6,373
VP
May-14
65 Mary St, Brisbane
8.00
750
10,667
Dev
Jun-14
340 Queen St, Brisbane
5.10
720
7,083
na
Jul-14
50 Ann St, Brisbane
131.80
25,519
5,165
6.96
Jul-14
443 Queen St, Brisbane
49.00
5,574
8,791
6.63
Nov-14
300 Adelaide St, Brisbane
47.50
13,140
3,615
7.87
Nov-14
340 Queen St, Brisbane
9.60
720
13,333
5.78
Dec-14
53 Albert St, Brisbane
209.27
18,440
11,349
8.16
Dec-14
60 Edward St, Brisbane
61.09
10,725
5,696
7.38
Source: Savills Research. na – not available.
Brisbane Office
CBD Office Sales ($m and number)
(>$2m) Mar-05 to Mar-15
$3,000
35
$2,500
30
25
$2,000
20
$1,500
15
$1,000
10
$500
5
$0
0
Sales > $2m (LHS)
Sales No (RHS)
Source: Savills Research
Interest remains strong for investment grade office properties with good leasing
profiles. Competition for this product is seeing some compression in yields despite
the current high vacancy in the CBD.
The only limitation is the availability of such stock on the market. Accordingly,
investment criteria have reduced slightly bringing the better secondary stock with
strong leases into the focus of institutional investors and foreign investors.
These comprise 85 percent of the buyers over the past year.
There have been observers of the Brisbane office market pointing to a potential price
collapse but that is difficult to accept given the sophistication and strength of the
savills.com.au/research
9
Savills Research | Brisbane CBD Office
April 2015
majority of participants in this asset class. There certainly appears a disconnect when
high vacancy and soft demand is rewarded with tightening yields but a more likely
scenario is that up to 200,000 square metres of low B-Grade office stock will exit the
market driven out by unacceptable returns and a reasonable to good outcome from
conversion to alternate use or redevelopment, if the building specifications do not
support successful conversion.
Brisbane Office
CBD Office Sales Buyer Profile (%)
12 months to Mar-15
Private Investor
9%
Developer
5%
Fund
58%
Syndicate
0%
Foreign Investor
26%
Source: Savills Research
Trust
1%
The fund purchaser category was the most active in the investment market for the
year ended March 2015, purchasing 58 percent of the stock sold. However the
Private Investor category had the most transactions (8).
Key Market Indicators – March 2015
Brisbane CBD
Premium
A Grade
B Grade
Low
High
Low
High
Low
High
Rental – Gross Face ($/sq m)
780
870
580
700
490
590
Rental – Net Face ($/sq m)
650
700
460
545
365
435
Incentive Level – Gross (%)
28
35
32
40
35
45
Outgoings – Operating ($/sq m)
80
110
70
95
75
95
Outgoings – Statutory ($/sq m)
50
60
50
60
50
60
Outgoings – Total ($/sq m)
130
170
120
155
125
155
Typical Lease Term (years)
7
10
4
10
3
8
Yield – Market (% Net Face Rental)
6.25
6.75
6.75
8.00
8.50
9.75
IRR (%)
7.75
8.75
8.75
9.25
9.25
9.75
Cars Permanent Reserved ($/pcm)
500
750
450
650
350
550
Cars Permanent ($/pcm)
450
650
400
550
300
500
9,650
11,200
5,750
8,100
3,750
5,100
Office Component Capital Values ($/sq m)
Source: Savills Research.
savills.com.au/research
10
Savills Research | Brisbane CBD Office
April 2015
Outlook
The challenges continue for the Brisbane CBD office market despite what has been a
reasonable start for leasing so far this year.
The main problem, however, is not the high vacancy so much the low business confidence.
Businesses have not had it this good for many years in terms of reasonably priced CBD
office accommodation and very attractive incentives to assist in providing efficient fit-outs
to get the best productivity, yet many businesses remain cautious.
The overriding concern seems to be that government debt is starting to get out of control,
major projects which create jobs and stimulate the economy are being deferred and there
appears little commitment to any meaningful reform.
Whether or not that is accurate, it appears to be the concern of big business judging by the
‘open’ letter to the federal government that was publicised earlier this month.
With the new Queensland Government, it is important for them to settle in quickly and get
on with some of the major projects which have been in the planning stages for some time.
While it is understandable for any new government to want to review projects upon taking
office, it is important to recognise that the benefits of these projects will be maximised by
an earlier start rather than delaying unduly.
With the Australian dollar now hovering around the 78 cents US, Australia looks a much
better proposition for tourism, investment and education. Brisbane needs to position itself
for what could be a period of great opportunity.
On the investment side, the previous year to March 2014 was an extraordinary year for
sales that has not been repeated in the year to March 2015 but the appetite for investment
remains strong. It is more a case of the availability of the right stock to meet the demand.
One office sale in 2015, recently announced and to be confirmed, is the Dexus purchase of
Waterfront Place reported as $635 million which would make it Brisbane’s largest single
whole building transaction.
This lays down the way for another record year of sales going forward.
savills.com.au/research
11
Savills Research | Brisbane CBD Office
April 2015
Savills Queensland Team
Our highly regarded research
divisions are dedicated to
understanding and giving indepth insight into the
commercial, industrial & retail
markets throughout Australia.
We also provide in-depth
consultancy services, ranging
from tenant representation to
property site selection for
multinational businesses.
Our research teams are
highly qualified real estate
professionals with
comprehensive knowledge of
property markets across
Australia.
The Savills Research &
Consultancy team has years
of experience, and supported
by our extensive agency,
property management and
valuation professionals, are
highly regarded and
respected along with Savills
Research teams across the
globe.
For our latest reports, contact one of the
team or visit savills.com.au/research
National Head of Research
Tony Crabb
+61 (0) 3 8686 8012
tcrabb@savills.com.au
Savills provide free research
reports on all major property
markets, and some example
papers include:
 Office Markets
 Retail Markets
 Residential Trends
 Industrial Markets
 International Markets
Download the
Savills iPad App
for insights at
your fingertips
This information is general information only and is subject to change without notice. No representations or warranties of any nature whatsoever
are given, intended or implied. Savills will not be liable for any omissions or errors. Savills will not be liable, including for negligence, for any direct,
indirect, special, incidental or consequential losses or damages arising out of our in any way connected with use of any of this information. This
information does not form part of or constitute an offer or contract. You should rely on your own enquiries about the accuracy of any information
or materials. All images are only for illustrative purposes. This information must not be copied, reproduced or distributed without the prior written
consent of Savills.
savills.com.au/research
12
With a rich heritage and a reputation for excellence that dates
back to 1855, Savills is a leading global real estate provider
listed on the London Stock Exchange.
Savills advises corporate, institutional
and private clients, seeking to acquire,
lease, develop or realise the value of
prime residential and commercial
property across the world’s key
markets.
Savills is a company that leads rather
than follows with over 600 offices and
associates throughout the UK, Europe,
Americas, Asia Pacific, Africa and the
Middle East. With over 27,000 staff, we
seek out people who possess that rare
mix of entrepreneurial flair and rock
solid integrity, and are focused on
delivering clients with advice and
expertise of the highest calibre.
A powerful combination of global
connections and deep local knowledge
provides Savills with an almost
unparalleled ability to connect people
and property.
Savills extensive Asia Pacific network
spans 50 offices throughout Australia,
New Zealand, China, Hong Kong, India,
Indonesia, Japan, Korea, Macao,
Malaysia, Myanmar, Philippines,
Singapore, Taiwan, Thailand and
Vietnam.
Adelaide
Brisbane
Canberra
Gold Coast
Melbourne
Notting Hill
Parramatta
Perth
Sunshine Coast
Sydney
+61 (0) 8 8237 5000
+61 (0) 7 3221 8355
+61 (0) 2 6221 8200
+61 (0) 7 5509 1700
+61 (0) 3 8686 8000
+61 (0) 3 9554 5100
+61 (0) 2 9761 1333
+61 (0) 8 9488 4111
+61 (0) 7 5313 7500
+61 (0) 2 8215 8888
In Australia, we offer the full spectrum
of services from providing strategic
advice to managing assets and projects
and transacting deals. With a firmly
embedded corporate culture that
values initiative, innovation and
integrity, clients receive outstanding
service and can be assured of the
utmost professionalism.
Contact Savills for advice on
all aspects of property:
 Sales
 Leasing
 Valuations
 Asset Management
 Project Management
 Strategic Corporate Real Estate
 Property Accounting
 Facilities Management
 Residential Luxury Sales
 Residential Projects
 Research