In their February Office Market Report the Property Council of Australia announced that Brisbane CBD vacancy rates had risen to their highest ever level of 14.2% – up from 12.8% in January 2013. The rate is expected to rise even further toward the end of 2016 when construction of new A+ grade stock including 480 Queen Street, 1 William Street, AMP’s new development in Milton, and the proposed Anthony John Groups development in Southbank reaches completion; prompting many commercial landlords to offer incentives of up to 40% to attract and retain tenants.
Relocating tenants such as the Queensland State Government; Flight Centre; Conoco Phillips; Origin Energy; BHP Billiton and Herbert Smith Freehills, have all signed on to leases within the new developments with the base building tier 1 contractor to undertaking integrated fitouts – creating a shortage of work for tier 2 fitout contractors.
The combination of landlord incentives and a shortage of work in the fitout sector have created conditions where in many instances commercial tenants are able relocate on a medium term lease with the incentive paying for the fitout, and in some circumstances the rent is also being paid under the incentive.
The question now for many commercial tenants is “Should we go or should we stay?”. The decision for many tenants is yes.
Those exiting existing A and B Grade spaces are likely to create a void within the market, forcing many landlords to undertake amenity and efficiency upgrades to keep their buildings occupied including improving front of house amenities such as wall, floor and ceiling finishes; upgrade lobbies; services upgrades and improvements to end of trip facilities such as bathrooms and showers.
For some landlords repurposing of a building will make greater economic sense than targeting an ever decreasing pool of tenants. We expect to see an increase in options for vacant B grade commercial buildings to be converted into hotels or multi residential accommodation.
WT Partnership is still expecting an abundance of A grade and premium grade fitouts to be undertaken in the next 24 months as tenants take advantage of the high incentive offerings from the market place.
In summary the four things to contemplate when considering renewing your lease or committing to a new build with an integrated fit out:
- Large incentives currently on offer will cover most if not all of your fitout costs
- Large incentives currently on offer potentially could cover your rent for the short to medium term
- Potential savings are available if the main contractor building the main building is contracted to undertake the integrated fitout component of works
- Access to the latest in building amenity including end of trip facilities
To find out more about what’s happening in commercial and office development in Brisbane contact:
Rebecca Manners, Associate
e: rmanners@wtpartnership.com.au
t: +61 7 3839 8777
