Canberra to see over 72,000sqm of new office space this year

This will push vacancy rates upwards.

JLL analysts anticipate that the office vacancy rate in Canberra will trend upwards over 2024. This will be driven by the completion of new office developments, totalling 72,700 sqm. 

“Prime and secondary yields are projected to soften further over 2024. This softening is anticipated to create a wider yield spread between prime and secondary assets. In particular, older secondary assets are likely to have an elevated vacancy risk, which could lead to a further pricing adjustment for this stock,” the analysts said.

Here’s more from JLL:

Canberra recorded positive net absorption of 942 sqm, mainly driven by positive demand from small tenants (<1,000 sqm) in the Civic precinct.

Whilst we recorded positive demand, the Canberra headline vacancy increased from 7.8% to 8.9% over Q1 2023. The increase in the headline vacancy rate was driven by the completion of 18 Marcus Clark Street (27,100 sqm). 

Total stock increases

We recorded one completion (totalling 27,100 sqm) and no withdrawal in the Canberra office market. As a result, total stock increased to 2.21 million sqm over the quarter. There is currently 100,500 sqm of stock under construction across five projects in Canberra with completion dates between 2024 to 2026. 

The largest project under construction is 15 Sydney Avenue (35,000 sqm) which is scheduled for completion in Q2 2026. The asset is fully pre-committed by the Australian Taxation Office. The second largest project under construction is 1 City Hill (33,000 sqm), which is scheduled for completion in Q1 2024. 

Prime yield softens due to elevated cost of debt

Prime net effective rents increased 1.7% over the quarter and have increased by 0.6% over the past year. Quarterly effective rent growth was driven by an uplift in face rents. Secondary net effective rents increased 1.3% over the quarter which was driven by an increase in net face rents. 

Prime yields in Canberra softened 25 bps on the upper end and lower end to range between 6.25%–7.75%. The softening is a reflection of a shift in investor sentiment because of the elevated cost of debt environment. 

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