The next investment destination – Canberra office market

September 7, 2015 / By

As competition for assets intensifies in the major CBD markets of Sydney and Melbourne, investors are seeking alternative options to satisfy investment mandates. Here is why Canberra should be on their investment radar.


A well-structured commercial property portfolio will offer diversification across geographic location, lot size, industries and sub sectors. Diversification is the cornerstone of modern portfolio theory and diversification benefits arise when a portfolio comprises low or uncorrelated assets. Canberra is considered a counter-cyclical market to both Sydney and Melbourne because historically the total return correlation has been low. Exposure to Canberra can therefore provide a reduction in volatility in a typical Australian office portfolio.


Overall, the public sector accounts for 55% of the occupier base in Canberra. JLL’s historical data suggests that public sector employment is more stable than the private sector. Stability in the labour market is illustrated by our net absorption figures for Sydney, Melbourne and Canberra. Canberra recorded only three negative net absorption years between 1979 and 2014. Conversely, Sydney has recorded 12 years and Melbourne nine years of negative net absorption over the same time period. Greater stability in the physical market reduces re-leasing risk, which ultimately results in a higher quality of income.

Attractive Spread

The weight of capital, low interest rate environment and limited availability of investment grade product has resulted in yield tightening across the majority of Australian office markets. In contrast the prime Canberra yield range has held steady since December 2012. As a result, the yield spread between Canberra and core CBD office markets has widened over this time. As an example, the prime equivalent spread between the mid-point of the Sydney and Canberra markets was 137 basis points in 2007, compressed to 75 basis points in 2009 and is currently 200 basis points. Based on this analysis, Canberra appears to offer a value proposition relative to the Sydney CBD.

While the analysis suggests Canberra is an attractive investment destination, an investor should be aware of the risks that accompany the Canberra office market. However, if the investor targets modern assets with strong covenants, long term leases and the latest in sustainability credentials, these risks can be minimised. With a shortage of prime grade assets and robust investor demand across Australia, Canberra will start to see increased investor interest and JLL projects yields will compress over the short to medium term. 

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