Canberra prime office space set for squeeze as vacancy rate drops

Recently released data on the health of Canberra’s office market highlights a decrease in vacancy rates, but also packs a cautionary warning.

The Property Council of Australia’s latest office market report shows Canberra has had one of the largest vacancy decreases in the country.

The flipside is that sourcing top grade office space may become increasing challenging as this segment continues to shrink in volume.

The council’s ACT executive director, Adina Cirson, says the new data tells a number of stories.

“Canberra’s overall vacancy rate decreased from 13 per cent to 12.6 per cent over the six months to January 2017, dropping a full percentage point since this time last year,” she says.

 “Unfortunately, the decrease is largely a result of withdrawal of stock, rather than positive demand. There were 32,616 square metres of withdrawals recorded across the board.”

Cirson says more incentives are urgently needed to convert tired office space to meet increasing demand for premium office product.

“There is no new supply in the pipeline beyond 2019. Canberra is really starting to boom and I believe we will see an increase in demand (for office space), but it will be for premium product,” Ms Cirson says.

While vacancy rates for A and B grade stock sit under 10 per cent, C and D grade stock vacancies range between 18.7 per cent to 23.1 per cent.

JLL’s ACT managing director, Andrew Balzanelli, agrees there has been strong leasing activity in the prime end of the market.

“Continued demand for quality space from the public and private sector will drive rental growth this year,” he says.

“The current tight level of A Grade vacancies in Civic will be one key driver for new office developments to begin construction.”

Balzanelli believes the development pipeline will pick up with some key office refurbishments and TOP Greenway, fully pre-committed to the Department of Social Services, expected to be completed.

CBRE associate director Zoe Ferrari says the Civic market has not seen a new speculative built office building since 2010.

“This has had a significant effect in our market as tenants continue to seek prime office accommodation,” she says.

“We are definitely starting to see the effects of a lower vacancy rate throughout Canberra, with incentives declining and rentals growing.

“We are likely to see some B and C grade stock refurbished and repositioned in the market, which will undoubtedly affect the vacancy rates,” Ferrari says.

Who’s in the market: Commercial commentators forecast a growing demand for premium office space in Canberra.