New office completions pull Canberra’s office vacancy rate upwards

Vacancy rate grew 1.3ppts to 7.3% in Q3.

According to a JLL report, the Canberra office market recorded positive net absorption of about 36,200 sqm for 3Q22. The key driver of this was the Australian Signals Directorate (ASD), which expanded to 26,500 sqm in the recently completed 25 Catalina Drive, Majura.

Despite solid levels of demand across primary and secondary stock, the Canberra vacancy rate increased 1.3 ppts to 7.3% as a result of new office completions.

Here’s more from JLL:

Two office completions totalling 47,500 sqm were recorded over 3Q22. The largest of these completions was 25 Catalina Drive, Majura (26,500 sqm), which was 100% leased to the ASD. The second completion was 6 Brindabella Circuit, Pialligo (21,000 sqm) which had not secured any pre-commitments at practical completion.

There is about 118,600 sqm of upcoming supply under construction across six developments in Canberra. Civic Quarter 2 (35,000 sqm), 5 Constitution Avenue (12,047 sqm) and Deakin One (8,000 sqm) are due for completion in 4Q22.

Growth in rents offset by rising incentives

Prime net face rents recorded steady growth of 1.8% over the quarter. However, this was counterbalanced by an increase in average prime incentives of 0.9 ppts to 24.4%, which was the highest level of incentive ever recorded since the metric was first tracked in 1987. As a result, prime net effective rents marginally decreased by -0.3% over the quarter.

The Canberra office investment market reflected limited activity, with one transaction recorded over the quarter. Section 22 Cnr Sydney Avenue & National Circuit was sold by DOMA Group to Charter Hall for AUD 370 million.

Outlook: Government sector enquiry is expected to remain robust

Positive leasing activity is projected to continue at a solid pace over the short term. The Federal Government’s budget update in October 2022 sets the investment agenda for 2023, and can provide insight into potential headcount growth in the government, which could be supportive of leasing activity in Canberra.

An environment characterised by rising cost of debt and investors being increasingly selective with the types of assets they are looking to acquire will likely result in further yield softening over the next 12 months. Pricing in better quality assets is expected to hold up better than assets with short-term capital expenditure requirements or short-term vacancy risk.