Let’s take a look at what’s happened in the nation’s capital over the past year in terms of rent, vacancy and new supply.
As high-quality office space is in high demand, but limited, Prime rents and incentives saw no change over the first half of 2022. Net face rent for these buildings currently sits at an average of $435 per sqm and incentives at 26%. Limited A-grade space and the flight-to-quality trend have seen tenants turn to quality B-grade alternatives. As a result, B-grade net face rents experienced four consecutive quarters of growth, attracting $330 psqm in Q2 2022. B-grade incentives also increased from 26% in Q1 2022 to 28% in Q2 2022. Incentives are expected to remain stable for the remainder of the year but may see an increase in 2023 due to an uptick in vacancy.
The impact of the pandemic slashed office demand which sent office vacancy rates soaring across the nation, except for Canberra, which recorded a y-o-y decrease from 10.6% in Q4 2019 to 8.2% in Q4 2020.
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 increased to 8.6% following an influx of new supply (circa 65,000 sqm).
Despite this recent 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. Demand for quality prime office space remains the highest, with A-grade vacancy sitting at 2.4%.
According to the PCA, circa 52,000 sqm of new office space will come online in the second half of 2022, with a total of circa 150,000 sqm expected to be completed by 2024. However, a large portion of this stock is pre-committed, and the rest is likely to be absorbed quickly, which should see vacancy rates remain relatively stable for the foreseeable future.
The Canberra office market is typically resistant to commercial property trends affecting other Australian markets. This is primarily due to the high proportion of government tenants (approximately 70%) occupying spaces on long-term leases. However, one national trend making an 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.
Most companies are willing to pay a premium for top-tier office space. However, they expect more from their buildings, particularly around high-class shared amenities and flexible parking arrangements.
Tenant CS is a commercial tenant representation firm that provides tenant advisory services to businesses. We work across Australia, focusing on Canberra, Sydney, Melbourne, Brisbane, Perth and Adelaide.
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