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 recently jumped back up to 8.3% following an unprecedented level of new supply (103,814 sqm) in 2022.
Most of this new stock is A-grade, contributing to the increase in Prime vacancy over the last six months (now sitting at 7.3%). Despite this rise, Canberra’s vacancy rate remains the lowest of all capital cities thanks to sustained high demand from government tenants and a spike in demand from the private sector, particularly for prime office space.
Prime and secondary vacancy rates in both the Civic and non-Civic now all sit at or below 10%.
In Canberra, quality office space is in high demand but limited. For this reason, Prime face rents in the Civic increased over the past year, currently reported at an average of $539 sqm Gross. Secondary grade Civic face rents also saw a marginal increase, now hovering at $425 sqm Gross. Non-Civic Prime and Secondary face rents have also increased, landing at $495 psqm and $403 psqm, respectively.
Prime and secondary face incentives in the Civic also crept up over the last quarter but remain at an all-time high for Canberra at 26.4% and 29.2%, respectively. Non-Civic incentives for Prime and Secondary stock also increased over the quarter, ending at 25.4% and 26.1%, respectively. We anticipate that incentives in both Civid and non-Civic areas will continue to increase as landlords attempt to lock in pre-commitments to new stock or backfill 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.
Over the next few years, Government headcount is also expected to grow, which will drive further leasing activity in high-quality buildings.
However, it’s worth noting that, unlike other major cities, Canberra has seen a more balanced uptake of primary and secondary stock in the Civic.
In 2023, we noticed a shift in the number of tenant’s opting to renew vs. relocate, with many opting to renew in light of limited relocation options and inflationary pressures.
The volume of new supply in Canberra amounted to only 15,394 sqm in 2023 due to several large projects that were rescheduled for completion in 2024. New supply is expected to reach 99,118 sqm in 2024, marking the second-highest annual total in the past decade.
Notable developments set to come online this year include:
While this influx of new supply is projected to moderate vacancy rates over the next three years, it's worth noting that Canberra remains the tightest CBD office market in Australia.
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