Vacancy rates drop in Canberra's office market

Office vacancy rates are tightening in the nation’s capital, with Canberra recording the second largest vacancy decrease in the country, according to a Property Council Australia report released on Thursday.

The PCA Office Market Report showed that Canberra’s overall vacancy rate dropped from 14.6 to 13 per cent during the first half of 2016, while vacancy in the CBD decreased from 11 per cent to 10.3 per cent.

CBRE manager of advisory and transaction services Belinda Hedley said the major contributing factor to the decline in vacancy rates was the Department of Finance taking up 25,000 square metres of office space in Forrest.

PCA ACT executive director Merlin Kong said there was a strong demand for high quality stock, however, outdated and less desirable office space did not fare as well.

Australia’s existing office buildings are awarded an A, B, C or D grade based on their quality. An A grade is awarded to a high-quality building, while a D-grade building features poor-quality office space with minimal technical services.

A-grade vacancies dropped from 13 per cent to 9.9 per cent. B-grade stock was also vacancy decreased from 10.3 to 8.6 per cent.

C and D-grade vacancies increased from 19.1 to 19.6 per cent and 23.9 to 24.6 per cent, respectively.

A report released this week by JLL noted that a “two-tier market” had emerged in Canberra’s office sector creating a disparity between the city’s primary (A and B grade) and secondary (C and D grade) office accommodation.

The increase in C and D-grade vacancies comes despite a withdrawal of about 19,000 square metres of older office accommodation.

However, Ms Hedley said this number is expected to increase over the next 12 months with proposed residential and hotel redevelopments of 92 Northbourne Avenue and 31-39 London Circuit.

JLL ACT managing director Andrew Balzanelli said prime grade vacancy within the city was now one of the lowest within all Australian CBDs and long-term plans for the city had contributed to a sense of positivity in Canberra’s office sector.

“The ACT government’s recent announcement on the preferred respondent for the city requirement of 20,000sqm within a new mixed use development, to be completed by mid-2020, is another positive for Canberra’s office market,” Mr Balzanelli said.

Knight Frank ACT’s head of office leasing Nicola Cooper said an extended period of inactivity in Canberra was caused by uncertainty around the results of the recent election.

“With the Coalition now in a position to form a majority government, we hope that Canberra will be able to get on with business as usual, however the effect on the private sector remains to be seen,” Ms Cooper said.