Stay clear or no fear? Federal elections and Canberra office demand
February 1, 2019 / By Sam Craig
With a federal election scheduled for Australia in 2019, it makes sense to question the impact it will have on office demand in the Canberra office market, particularly given the high historical levels of public sector occupancy. This also has implications for other Australian office markets, with 62% of the Commonwealth of Australia’s headcount outside of the Australian Capital Territory.
As per Figure 1, JLL research shows that the Canberra office market has averaged 32,200 sqm of net absorption per annum under Australian Labor Party (ALP) leadership compared to 16,100 sqm under Liberal National Party (LNP) leadership (excluding the 2007 outlier year). This differential in net absorption is likely due to the fact that demand for Canberra office space has a strong correlation with public sector employment levels.
Source: JLL Research
Historically, the LNP has been characterised as a political party of small government, one which prefers to reduce government intervention and instead foster private enterprise. In contrast, the ALP has represented the interests of the working people – hence its strong relationship with unions, in particular the Community and Public Sector Union (CPSU).
Figure 2 (below) shows that periods in which the ALP has been elected to Federal Government, has resulted in a sharp rise in Australian Public Sector (APS) employment to historical highs, and periods in which the LNP has been elected has resulted in ongoing casualisation and/or privatisation of public sector employment.
Source: JLL Research
The LNP has enacted two policies which have impacted the Commonwealth’s leasing demand. Firstly, they capped average public sector staffing levels at or below 2006-07 levels.[1] Secondly, they set out a Department of Finance policy with the aim of achieving the efficient, effective, and economical management of leased Commonwealth property in Australia.[2]
This has caused ongoing departmental consolidation activity over the last three years, although the broader public sector has still comprised 80% of gross leasing demand (>1,000 sqm) over the last five years despite improved private sector demand (particularly in the <1,000 sqm market). It is no coincidence that private sector demand for office space has increased in recent times as a result with the LNP government in control.
The ALP has vowed to scrap average staffing levels and cut public sector spending on external consultants should it be elected in 2019. This rather simply sums up the trade-off – that of increased public sector employment and consistent demand for office space at the expense of the private sector. In contrast, the LNP government would continue down its current path, with stable (albeit lower) public sector employment and increased private sector contracting.
One way or another, the federal election will impact public and private sector demand for office space. At the end of the day, Canberra remains one of Australia’s most stable CBD office markets, with fewer instances of negative net absorption compared with other CBD office markets. It offers long-term growth, stable returns, and also portfolio diversification given its low correlation with other CBD office markets.
[1] https://budget.gov.au/2016-17/content/bp4/html/09_staff.htm
[2] https://www.finance.gov.au/property-management-framework/
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