APPD Market Report Article
CanberraMay 31, 2022
Headline vacancy contracts further to 5.5%
- The Canberra office market continued to record positive net absorption of 12,600 sqm over the quarter. As such, headline vacancy fell further to 5.5%, the lowest level since 2008.
- The public sector continued to drive leasing demand in 1Q22, with the ACT Government fully occupying pre-leased space at 15 Constitution Avenue (9,000 sqm) and 3 Constitution Avenue (7,500 sqm). Defence Housing Australia vacated 4,300 sqm at 22 Brisbane Avenue, Barton, and relocated to Gungahlin. Service Australia contracted in 1,500 sqm at 13 Lonsdale Street, Braddon.
One withdrawal and two completions were recorded over the quarter
- The renovations of 3 Constitution Avenue (7,500 sqm) and 15 Constitution Avenue (9,000 sqm) were completed in 1Q22. Both of the assets were fully occupied by the ACT Government. 220 Northbourne Avenue (7,900 sqm) was withdrawn as the building is planned for residential redevelopment. As such, total stock increased by 8,700 sqm to 2.1 million in the quarter.
- We are currently tracking 161,000 sqm of space under construction across eight developments, including one refurbishment at 5 Constitution Avenue (12,000 sqm). The earliest completion is 6 Brindabella Circuit (21,000 sqm), which is expected to complete in 2Q22. Section 63 is the largest office development in the current pipeline with 40,000 sqm of office space under construction.
33 Allara Street was sold for AUD 71.3 million
- Prime net effective rents increased by 0.6% over the quarter. The growth was driven by face rents while incentives remained stable at 23.3%. Secondary net effective rent increased by 1.2% in 1Q22.
- One transaction was recorded over the quarter. 33 Allara Street was sold by Molonglo Group to City of Brisbane Investment Corporation (CIBC) for AUD 71.3 million.
Outlook: Demand to be subdued because of the upcoming election
- With the Federal election to be held in the first half of this year, we are anticipating a flat quarter of leasing activity in 2Q22 as the government enters caretaker mode and leasing decisions are put on hold. Furthermore, given there a large amount of office projects that are expected to complete in 2022, the Canberra vacancy rate is projected to trend upwards over the short term.
- The 2022-23 federal budget outlined significant headcount growth in defense over the next decade which is anticipated to stimulate office demand from both the public and private sectors in the long run. Canberra’s office market will continue to draw interest from investors seeking product with long WALE and stable income streams from government tenants.