Let’s take a look at what’s happened in the Canberra property market over the past year in terms of office rent, vacancy and new supply.
Following the pandemic, economic uncertainty and hybrid working arrangements slashed office demand nationwide, except for Canberra, where a y-o-y decrease was recorded.
Dubbed Australia’s most resilient office market, Canberra’s total vacancy rate has since dipped to as low as 5.5% (Q1 2022) but ended H1 2024 at 9.5%. This comes off the back of the injection of new supply, including 18 Marcus Clarke Street (27,000 sqm), 2 Faulding Street (6,600 sqm) and 1 Taubman Street (3,437 sqm).
Most of this new stock is A-grade, which contributed to the increase in Prime vacancy over the last six months (now sitting at 8.8%). Secondary vacancy also increased off the back of the flight to quality, ending at 10.4%.
Despite the rise in vacancy rates, rental rates have increased in the first part of the year. In the Civic area, Prime and Secondary rental rates reached $550 and $438, respectively, while in the non-Civic area, they ended at $501 and $411.
Incentives for Prime and Secondary spaces in the Civic have remained steady, though they are at record highs for Canberra, at 26.4% and 29.2%, respectively. Non-Civic incentives for Prime and Secondary spaces also remained stable, finishing the period 25.4% and 26.2%, respectively.
We expect incentives to continue rising in both Civic and non-Civic areas as landlords seek to secure pre-commitments for new stock or fill existing vacancies.
The Canberra office market is typically resistant to the commercial property trends that affect other cities. This is primarily due to the high proportion of government tenants (approximately 70%) on long-term leases. However, one national trend making some impact is the ‘flight to quality.’
Like other major cities, there has been a noticeable uptick in tenants seeking high-quality space to help lure staff back to the office or assist in their attraction and retention strategies.
Many companies are willing to pay a premium for top-tier office space. However, they expect more from their buildings, seeking high-class shared amenities and flexible parking arrangements.
However, it’s worth noting that, unlike other major cities, Canberra has experienced a more balanced uptake of both primary and secondary stock in the Civic.
Despite the recent increase, Canberra continues to have the lowest vacancy rate among all capital cities. This is largely due to persistent high demand from government tenants and a notable rise in interest from the private sector, particularly for premium office spaces.
However, vacancy rates are expected to climb through the latter half of 2024, with approximately 82,000 sqm of new stock anticipated to hit the market, bringing the annual total to 120,000 sqm.
Over the next 3-4 years leading up to 2028, an additional 90,000 sqm of office space per year might be introduced. However, much of this anticipated supply is still in the planning stages or may face delays.
Canberra's office market is witnessing significant shifts in demand as government requirements evolve. A notable trend is the increasing emphasis on sustainability, reflected in the new 5.5-star NABERS energy rating mandate. While this push towards greener buildings aligns with broader environmental goals, it poses considerable challenges for owners of existing properties in the secondary market. These owners now face substantial capital expenditure to upgrade their assets, a task made more difficult due to the high cost of construction. As a result, there are widespread concerns about older stock’s ability to meet evolving standards.
The widespread adoption of remote work practices in both the public and private sectors means the once-bustling Civic Centre is now facing reduced foot traffic and lower office occupancy levels. Local businesses, which rely on a steady flow of office workers, are feeling the strain, prompting a re-evaluation of how office spaces are used and their importance in maintaining the vibrancy of Canberra’s urban core.
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