Canberra office vacancy rate could reach 15% under Coalition job cut plans: BIS Shrapnel

The Canberra office vacancy rate could rise to 15% if an incoming Coalition government goes ahead with its stated goal of cutting 12,000 public service jobs, market researchers BIS Shrapnel have warned.

Under this worst-case but now "most probable" scenario, 216,000 square metres of occupied space could be vacated, the equivalent of 11% of Canberra’s entire office workforce.

This would result in around 216,000 square metres of office space vacated, which at current net absorption rates would take six years to fill meaning “double-digit vacancy rates for a decade, accompanied by falling rents and property values”.

The Property Council of Australia reported in January that the Canberra office vacancy rate was at 11.9%.

Around 87% of all office space in Canberra is leased to government and community tenants. 


A previous more moderate scenario, which could still play out according to BIS Shrapnel, would be 5,000 jobs cut, which would still have negative implications for vacancies, rents, prices and investment returns.

At the current average workspace ratio of 18 square metres per person, the loss of 5,000 jobs means that occupied space in the nation’s capital will drop by 90,000 square metres - more than twice the size of the new ASIO Building.

“Even at this level, there will be a rise in average vacancy rates – to more than 11% in Civic and above 14% across the metropolitan area”, says BIS Shrapnel analyst Christian Schilling.

Howerver, he warns that what was just a “possibility” 12 months ago of 12,000 job cuts has now “become the most probable outcome.”

“There is little doubt that there will be a much sharper decline in the Commonwealth workforce compared with the incumbent government’s plans”, says the study’s author, senior project manager Christian Schilling. “The main question is how many jobs will be lost and what does that mean for leasing, construction and investment in Canberra.”

"Depending on the severity of the cuts, it could tip the market into a severe downturn”, Schilling says.

“We could see falling rents for much of this decade. Investors would see their returns eroded by falling values. Canberra office space would not represent a good investment.”

However, the rise in the vacancy rate will not be uniform with A grade space “where vacancies are likely to remain relatively confined, will be less affected than the rest.”

BIS Shrapnel identifies seven mostly empty buildings at the airport as well as more speculative space due to come on stream in Barton later this year, “which will continue to act as a brake on the market”.

“Secondary buildings, in contrast, will struggle to find tenants. There is no demand for small, older-style properties that do not comply with current Commonwealth accommodation standards and scheduled consolidation at the Departments of Human Services (this year) and Families, Housing, Community Services and Indigenous Affairs (2016) will release more backfill space that stands little chance of finding another office tenant. For many owners, the only option is re-development,” says Schilling.

Others do not make such dire predictions.

President Michael Kumm played down concerns about the impact of public sector job cuts on the Canberra property market.

Kunn, a 34 year veteran of the Canberra real estate market, expects that whoever wins power on September 14 will shrink the size of the civil service, but says this will be more than compensated by the large numbers of servants due to retire in the next five years.

“Around 20% of those working in the public service are due to retire over the next five years," he told Property Observer in February.

“The Liberals are talking about a 12% reduction in the public service - and through natural attrition - meaning they will have to hire an additional 8% to make up the shortfall.

“The reality is that it’s not as bad as people think.”

Another positive factor he says is that whereas in years past, those that retired from the public sector would move out of Canberra, now those that retire are choosing to stay in the federal capital

Savills reported that following the completion of 4 National Circuit during the first quarter of 2013, there remains a total of 96,000 square metres of stock in the supply pipeline under construction and due to complete in 2013, most of which is new supply.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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