Brisbane leads office rental growth in APAC, according to Knight Frank research

Brisbane has had the strongest rental growth in Asia Pacific over the 12 months to the end of Q1 2024, according to the latest research from Knight Frank.

Knight Frank’s Asia-Pacific Prime Office Rental Index for Q1 2024 found Brisbane recorded rental growth of 6.8% over the 12-month period, recording the highest rental growth out of 23 cities tracked.

Ho Chi Minh City was next at 6.6%, while Perth came in third at 6.3%.

Of the other Oceania cities, Auckland came in at 4.3%, followed by Sydney (3.6%) and Melbourne (0.1%).

The report found 15 out of 23 cities tracked by the index recorded stable or increased rents in Q1 2024, compared with 13 cities in Q4 2023.

However, the Asia-Pacific Prime Office Rental Index registered a 3.2% year-on-year decline, steeper than the 2.4% year-on-year fall in Q4 2023.

This seventh consecutive quarterly drop was primarily driven by deepening rental declines in Chinese Mainland cities, which reached record lows during the quarter.

Meanwhile, Knight Frank’s Brisbane CBD Office Market report provides further evidence of the strong rental growth in Brisbane’s CBD office market, finding average prime gross face rents increased by 6.3% to $907/sqm in the 12 months to April 2024.

Prime effective rents are forecast to grow by a further 5.7% over the remainder of 2024, and prime face rents are forecast to grow by an average of 6.1% in the five years from 2024 to 2028.

Prime incentives now average 39%, falling from 40% in the past six months, and are predicted to fall to 38% over the next two years before plateauing.

Knight Frank Partner, Research and Consulting Jennelle Wilson said demand for premium and upper A grade space – or best in class assets – had continued to drive prime rental growth in Brisbane’s CBD office market.

“Conservatism due to slower economic growth and cost pressures is expected to moderate rental growth during 2025 before the inherent lack of new supply will see rents accelerate again from 2026 and 2028.

“The total vacancy rate is forecast to fall to 9.7% by January 2025, down from 11.7% in January 2024, due to a lack of supply in 2024 and ongoing tenant demand, before increasing again in response to new supply through 2025.

“However, the lack of new supply between 2026 and 2028 will support vacancy falling again to below 9%, with the prime market to become very tight, particularly for contiguous space.”

Knight Frank Head of Office Leasing Queensland Mark McCann said the Brisbane CBD office market had been supported by strong tenant demand over the past year, leading to significant rental growth.

“With no new prime supply since 2021 and more than a year before uncommitted new space is delivered, which is likely to be limited, larger tenants are increasingly commencing the process to secure their space well ahead of expiry due to supply constraints,” he said.

“Tenant demand for the CBD has been broad-based over the past 12 months, but the most active sectors have been Professional, Scientific & Technical services and Government.

“Recently the State Government has been the more active government tenant, but this is expected to switch to the Federal Government during 2024.

“The importance of the workplace to attract and retain staff plus maintain a dynamic and highly attended office remains of key importance to both large and mid-tier tenants.

“Top and mid-tier professional firms are increasingly locking in future premises decisions and taking advantage of the relatively greater choice on offer now than there is expected to be in the next three years.”