APPD Market Report Article
CanberraAugust 26, 2022
Andrew Ballantyne, Head of Research, Australia
Demand falls as large tenant vacates prime stock
- The Canberra office market recorded negative net absorption of -14,000 sqm as large tenants vacated prime stock that was no longer required or consolidated into existing space. The Clean Energy Regulator vacated 7,500 sqm at 5 Farrell Place to move into an existing space at 47 Bowes Street, while the ABS vacated 9,359 sqm at 40 Cameron Avenue.
- Negative net absorption drove the headline vacancy rate to rise 0.6 percentage points (ppts) to 6.1% in the quarter. The prime vacancy rate rose 1.2 ppts to 3.9% and the secondary vacancy rate fell 0.7 ppts to 10.1%.
Total stock falls as assets are withdrawn for redevelopment
- Canberra’s total office stock fell by 3,100 sqm, as 15 Bowes Place, and 175, 179 and 187-195 London Circuit were withdrawn from stock for either refurbishment or redevelopment.
- There is 149,000 sqm of office stock under construction across eight developments in Canberra. 6 Brindabella Circuit (21,000 sqm), Majura Park Stage 3 Office (20,000 sqm) and Deakin One (8,000 sqm) are expected to complete in 3Q22, while the largest project under construction is Civic Quarter 2 (35,000 sqm), due for completion in 4Q22.
Minor movements in face rents and incentives
- Prime net effective rents grew 0.2% over the quarter, as a 0.6% rise in face rents outpaced a 0.2 ppts increase in incentives. Secondary net effective rents also increased by 0.2% over the quarter. This was driven by a 0.1% increase in face rents and a 0.7 ppts fall in incentives.
- The Canberra office investment market showed limited activity in 2Q22 with only one transaction recorded. 39 Brisbane Avenue was sold by Quintessential to IOOF for AUD 41 million, reflecting an equivalent yield of 5.11%.
Outlook: Vacancy to rise as new buildings complete in the short term
- Leasing activity is expected to grow after a quiet quarter in 2Q22, which is in line with previous quarters that preceded a Federal election. Vacancy rates are expected to rise over the next 12 months as several new office buildings complete across the market, with backfill vacancy becoming available as these tenants move into this new stock.
- Effective rents are projected to increase slightly over the near term as face rental growth outpaces the projected upward trend in incentives. The upward trend in incentives is expected to be driven by rising vacancy and backfill space in the market.