Canberra office market registers negative demand in Q3

Net absorption hit -24,200 during the quarter.

According to a JLL report, the Canberra office market recorded -24,200 sqm of net absorption over the third quarter of 2023. The negative result was driven by federal government tenants consolidating out of older space. National Disability Insurance Agency (NDIA) and Service Australia collectively vacated 14,500 sqm over the quarter. 

The negative result was partly counterbalanced by a number of positive moves, including Independent Property Group relocating into IPG, 91-93 Northbourne Avenue (379 sqm) over the quarter, the report said.

Here’s more from JLL:

We recorded no office completions over the quarter. Currently, we are tracking five projects under construction totalling 123,900 sqm with a pre-commitment rate of 51%. These developments are projected to complete between 2023 and 2026.

The withdrawal of two office assets totalling 5,290 sqm resulted in Canberra’s office stock decreasing in the quarter by 0.2% to 2.19 million sqm. The largest withdrawal was 1 Greenway Place (2,790 sqm), which will be converted to alternative use. 

Prime gross face rents increase, driven by an uptick in outgoings

Prime net effective rents decreased marginally over the quarter and have decreased 3.6% y-o-y. Average prime incentives remain unchanged over the quarter at 25.3%. Incentives are at the highest level since JLL began tracking this metric in 1987. 

Prime yields in Canberra remained unchanged on the upper and lower end over the quarter (5.50% to 7.25%, with a midpoint of 6.38%). The secondary yield range also remained unchanged over the quarter at 7.25% to 10.25%, with a midpoint yield of 8.75%. 

Outlook: Canberra anticipated to maintain lowest CBD vacancy rate

The Canberra vacancy rate is projected to trend upward for the short term, driven by the completion of new office stock. There are a number of larger government briefs in the market that could support demand and the private sector remains active, but more so in the small suite market (sub-500 sqm). 

In an elevated cost of debt environment, investors are being increasingly selective in the assets that they consider acquiring or disposing. As such, we are projecting prime and secondary yields to continue softening over the coming quarters.

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