Canberra office market shows tentative recovery: Savills report

Canberra office market shows tentative recovery: Savills report
Canberra office market shows tentative recovery: Savills report

Canberra’s office market is showing tentative signs of recovery, with leasing up threefold on the last 12 months, according to Savills’ latest Canberra office briefing.

It follows recent major cuts in public sector jobs and workspace ratios along with new green office requirements, which had seen the vacancy rate reach 15.3 %.

While the market was currently experiencing negative net absorption, the speculative development phase had ended and the 2015 federal budget did not indicate more public sector job cuts, according to Savills’ NSW research analyst Houssam Yakzan.

"The situation that the Canberra office market finds itself in at the moment is the result of a coincidence of opposing forces, including the election of a conservative government, which traditionally sees a reduction in the size of the public sector workforce, and the occurrence of a speculative construction cycle," he said.

"Both of those factors now appear to have come to a head. Over the next 10 years we expect to see a forecast rise in white collar employment delivering positive net absorption and we could see the beginning of that improvement in 2015/2016, however that improvement will also be tempered by negative net absorption in C and D grade buildings,’’ Yakzan said.

According to figures from Deloitte Access Economics, white collar employment is expected to grow at an average of 1 % per annum from 2017/18 to 2024.

Yakzan said less than 10,000 square metres of new and refurbished space was currently under construction with no further development in the pipeline. He said any other mooted supply would require significant pre-commitment for construction to take place.

"We expect any tenant demand during this period to be predominantly satisfied by existing stock given the current availability of space,’’ he said.

Savills divisional director, sales and leasing, Theo Dimarhos, said the market was showing signs of recovery with leasing in the 12 months to September tripling from the 12 months prior to 106,724 square metres, and also up on the five-year average of 100,300 square metres.

"These are already translating into lower vacancy rates in some areas of the market, indeed the high vacancy rate can be a little misleading in that it does not accurately reflect vacancies across the markets."

He said it was the secondary stock at 16% plus which distorted the overall picture.

"In the A Grade market Barton, and Belconnen, Woden and Tuggeranong town centres are performing quite well recording sub-5% vacancies, a result which compares well with most other capital city markets,’’ Dimarhos said.

The Canberra market had grown by 1.4% in the last 12 months, the second largest rise nationally behind Perth, the report said.

It found net face rents in Civic had not moved over the last 12 months and ranged between $328 and $390.

As for investments, office transactions totalled $152 million during the period with A Grade yields in Civic – which accounts for nearly 30 % of the market – currently between 6.75% and 8.5%.

Trusts were the key buyers with 53 % of purchases.

The most recent sales include that of 64 Allara Street, which sold for $16.8 million, 54 and 60 Marcus Clarke Street, which sold for a combined $63.26 million, and 20 Allara Street, which sold for $20.5 million.

Dimarhos said he expected yields for prime assets with secure lease profiles to remain strong.

Canberra Office Market


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