Brisbane commercial property includes predominantly the CBD and fringe areas of the CBD, which is known as the Brisbane Fringe. The Brisbane commercial property market has over 3 million square metres of stock, 2 million of this stock is located in the CBD. The CBD market is currently comprised of 43% prime grade space (buildings of either premium or A grades) and 57% secondary grade space (B, C & D grades).  There are many fundamentals that need to be considered when investors are looking to buy Brisbane commercial property. Below is a review of 7 fundamentals and the impact the current downturn has had on these fundamentals.

1.    Vacancies
The vacancy rate for Brisbane commercial property as of July 2009 was 10.7%, up from 1.2% in July 2008 for the CBD and 11.6% up from 3.2% in July 2008 for the Brisbane Fringe. Although vacancy rates are forecast to reach around 16%, investors looking to buy Brisbane commercial property can take some confidence from the fact that this peak is forecast to occur in the next 12 months and then demand for office space is expected to accelerate and return to normal levels in 2011.

2.    Planning changes
There have been some recent planning changes that could provide upside for investors looking to buy Brisbane commercial property. The main areas that will benefit from recent planning changes are Fortitude Valley, South Brisbane and Woolloongabba. Each of these areas has had new draft local plans released with increases in densities and building height limits.

3.    Future supply
The Brisbane commercial property market has experienced a record breaking supply surge in the last 12 months. Positive news for investors looking to buy Brisbane commercial property is that around 80% of the new space is pre-committed, most projects that are not under construction have been deferred or cancelled, and the CBD recorded a positive net absorption for the last 6 months to July 2009.

4.    Incentives
Incentives have increased substantially to between 15% to 25% in the last 12 months due to landlords looking to attract tenants. Investors looking to buy Brisbane commercial property should note that incentives are forecast to peak at 20% to 30% before trending down again.

5.    Gross rents
A two tiered market is currently present with gross face rents for new A grade office generally lower than existing A grade stock. Investors looking to buy Brisbane commercial property should also consider the fact that average gross effective rents have softened by 33% over the 12 months to October 2009.

Gross face rents in the CBD as at August 2009 were:
Prime grade space - $590/m2 to $825/m2
Secondary grade space - $480/m2 to $575/m2

Gross face rents in the Brisbane Fringe as at September 2009 were:
Prime grade space - $425/m2 to $500/m2
Secondary grade space - $350/m2 to $425/m2

6.    Yields
Prime grade property has increased on average 125 basis points to between 7.5% and 8.75% and secondary property has increased by in excess of 200 basis points to between 8.75% and 10%. This increase in market yields over the last 12 months is encouraging investors to buy Brisbane commercial property. Investors looking to buy Brisbane commercial property should be aware that reported yields are not always a good indication of the true market values as a lot of office buildings can have lease rates that are either above or below market rates at the time of sale.

7.    Recent sales activity
Private investors have been the dominant buyers in the investment market accounting for 73% of all Brisbane commercial property transactions this year. The total value of sales is down 81% compared with the previous financial year and the number of transactions has almost halved since the market peak in 2007.

The majority of recent transactions occurring in the Brisbane commercial property market have been in the $5 to $25 million range with the type of stock being predominately smaller, secondary buildings.

Private vendors who have owned their Brisbane commercial property for several years have seen their property rise significantly in value with the last boom. They are still sitting on substantial gains even though the market has corrected and as a consequence are reluctant to sell.

Being currently a buyers market, opportunities exist for astute investors looking to buy Brisbane commercial property.

 Information for this article has been sourced from Colliers International, Savills, Property Council Australia, Knight Frank and CBRE.

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