This article is from the Australian Property Journal archive
VACANCY rates were up in Australia’s capital city office market, as the first half saw new A-grade space supply come online across historically tight precincts in Canberra.
According to Knight Frank’s latest Canberra Office Market report, the city’s office market vacancy was up from 8.3% to 9.5% over the first half of 2024.
Over the half, 37,030 sqm of space was injected into the office market, bringing total stock up to its highest level on record at 2,397,006 sqm. With around 115,000 sqm new development stock forecast for delivery over the coming two years.
“While vacancy has ticked up in Canberra’s office market as a result of greater supply, overall vacancy is still below its 10-year average of 11% and is the lowest of the major capital cities, along with the Brisbane CBD,” said Nathan Dunn, partner and managing director at Knight Frank, ACT.
Dunn noted that areas with very low prime vacancy, including Barton were the rate sits at just 0.5%, will benefit from upcoming stock.
“Like other markets around Australia, we have seen strong demand for A-grade office space due to the flight to quality trend and in Canberra we have seen a sustained level of demand for prime space from government tenants in particular,” added Dunn.
Public and private sector occupier demand is also driving steady rental growth, with prime net face rents up 2.4% to $457/sqm in the Civic and Parliamentary precinct over the year to July 2024.
With the secondary market annual net face growth at 2.3% over the same period to $363/sqm.
While average prime incentives in the Civic and Parliamentary precinct are still sitting at all-time high of 26.5%. With prime net effective rents increasing by 2.1% to $307/sqm.
“Although new build supply is limited, the few sites that will have soil turned in the next three to five years will have a completely different rent base than existing stock, caused by elevated construction costs, which then makes anything under a certain economic rent untenable to construct. This will start to drag the market rents northwards and we are already seeing evidence of this, said Dunn.
“Australian Public Service (APS) Department Heads have been told in no uncertain terms to downsize their reliance on contractors, and you can now start to see the on-flow effect of this. Private Sector firms reliant on Government work are looking for shorter term lease deals, shorter renewals, and certainly exploring rationalization options. However, vacancy still sits at the lowest level nationally of all core markets, equal with Brisbane.”
