APPD Market Report Article

Canberra

December 1, 2021

-2.2%

AUD 343.6

Rents
Falling

Headline vacancy contracts to 6.5%

  • Headline vacancy contracted further in 3Q21 to 6.5%. The decline comes on the back of robust positive net absorption, which reached 11,100 sqm in the quarter and brings the total for the nine months to September to 20,200 sqm.
  • The public sector was active, with the Department of Education, Skills and Employment leasing 1,800 sqm at 12 Moore Street, City. However, private sector leasing activity also picked up, with Amazon leasing 1,600 sqm at 68 Northbourne Avenue, City. Tenants in the private sector are expected to remain active for the remainder of the year on the back of some groups winning government contracts.

Vacancy continues to trend downwards

  • There were no office completions or withdrawals recorded in 3Q21. As such, total stock remained stable at 2.11 million sqm.
  • We are currently tracking 100,500 sqm of office space under construction across six developments: two are refurbishments totalling 16,500 sqm and expected to complete in 4Q21. The remaining four developments are new projects totalling 84,000 sqm and are due to complete in 2022. These developments have achieved a blended pre-commitment rate of 49%.

Investment activity picks up in 3Q21

  • Prime net effective rents increased by 0.7% in 3Q21, but declined by 2.9% y-o-y. Positive quarterly growth was driven by an uplift in face rents, which outweighed a minor increase in prime incentives to 23.2%. Secondary net effective rents increased by 1.5% q-o-q and by a robust 4.7% y-o-y. Similarly to prime, secondary growth was driven by an uplift in face rents.
  • Four transactions totalling AUD 253.8 million were recorded in 3Q21 The largest in terms of sale value was 18 Canberra Avenue, Forrest (AUD 98.5 million). 8 Atlantic Street, Phillip sold for AUD 83.0 million, 9 Brisbane Avenue, Barton sold for AUD 60.5 million and 60 Denison Street, Deakin sold for AUD 11.8 million. Prime yields compressed by 13 bps at the lower end to range between 4.75%-6.25%.

Outlook: Transaction levels expected to remain robust

  • Public and private sector demand is expected to keep headline vacancy tight for the remainder of the year. However, as projects under construction enter the market in 2022, headline vacancy is expected to rise as a result of an increase in backfill vacancy.
  • Office transaction levels are expected to remain robust over the remainder of the year. Canberra’s office market remains an attractive destination for domestic and foreign investors who are seeking a stable income stream from government tenanted assets with long WALEs.

Note: Canberra Office refers to Canberra's office market (all grades).

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