Canberra records -3,100 office net absorption in Q2

But this was partly offset by some positive moves in the market.

According to data from a JLL report, the Canberra office market recorded around -3,100 sqm of net absorption over the quarter. The negative result was driven by the withdrawal of an office asset (5 Chan Street) and the Department of Home Affairs (which occupied this building) consolidating into existing office accommodation at 3 Mongolo Drive, 2 Constitution Avenue, 45 Benjamin Way, 5 Chan Street (Orange) and 7 Chan Street.

The report said the negative result was partly counterbalanced by a number of positive moves, the largest including the ACLEI relocating into 5 Constitution Avenue (3,100 sqm), Viva Leisure relocating into 23 Challis Street (2,400 sqm) and one undisclosed tenant relocating into 6 Brindabella Circuit (5,700 sqm). In addition to small-tenant demand (sub-500 sqm) the vacancy rate decreased to 7.1%.

Here’s more from JLL:

We recorded two office completions over the quarter totalling 5,000 sqm. The two assets at 23 Challis Street (North and South Tower) were 100% pre-committed at practical completion. We are currently tracking 64,400 sqm of supply under construction across two developments in Canberra, both of which have completion dates in the fourth quarter of this year.

Due to three withdrawals over the quarter totalling 21,400 sqm, total stock in Canberra decreased by 0.9% in the quarter to 2.19 million sqm. The largest withdrawal was at 5 Chan Street (Purple, Blue, Aqua, Magenta Buildings) with 20,200 sqm, which will be converted to an alternative use. 

Prime yields record further softening

Prime net effective rents remained broadly unchanged over the quarter, however, they have decreased by 3.0% y-o-y. Average prime incentives marginally increased by 0.2 ppts over the quarter to 25.3%. Incentives are at the highest level since JLL began tracking this metric in 1987. 

Prime yields in Canberra softened by 25 basis points (bps) on the upper and lower end to range between 5.50%–7.25%, with a midpoint yield of 6.38%. Secondary yields compressed by 25 bps on the upper end to range between 7.25%–10.25%, with a midpoint yield of 8.75%. 

Outlook: The vacancy rate is projected to rise over the short term

The Canberra vacancy rate is projected to trend upwards over the short term, driven by completion activity in the latter half of 2023. However, the public sector is continually looking for space across various departments and is likely to support growth over the near term. The private sector should support positive leasing in the small suite market, particularly if they win Government contracts.

Over the short term, it is anticipated that face rents will show consistent growth, which will be partially offset by the rise in incentives. Rising incentives are being driven by a projected rise in the vacancy rate.

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