Property Council of Australia has released its latest bi-annual office market report, revealing positive trends for Canberra's office markets. Despite a slight increase, the vacancy rate in Canberra's Civic region remains below the national average at 9.6 per cent.

This growth in vacancy is attributed to the recently completed refurbishment project at 18 Marcus Clarke Street, which has not yet reached full occupancy. Nevertheless, net absorption for the first half of 2024 remains positive, increasing by 15,358 sqm.

Contrary to the "flight to quality" trend observed in other Australian office markets, Canberra's A-grade vacancy rate has risen by 160 basis points to 9.5 per cent, while B-grade vacancy has only increased by 30 basis points to 8.3 per cent.

However, long-term concerns persist for Canberra's secondary market due to changing government requirements. The new 5.5-star NABERS rating mandate is expected to necessitate substantial capital expenditure for existing building owners, particularly challenging in the current high-cost construction environment.

The Canberra region is facing potential challenges in its office property market. With plans for over 130,000 sqm of new office space in the pipeline, developers are grappling with significant hurdles.

The combination of high construction costs and the requirement for new buildings to meet a 6-star NABERS rating is driving up development expenses. As a result, substantial increases in face rents will be necessary to make these new construction projects financially viable.

This situation is creating a noticeable gap between current market rents and the economic rents required to justify new developments. Consequently, the timeline for completing new supply projects is likely to be extended, as developers await more favourable market conditions or seek ways to bridge this financial gap.

The Non-Civic areas of Canberra are mirroring the Civic market's performance, with vacancy rates remaining lower than the national average for non-CBD areas. Currently, the vacancy rate in these areas stands at 9.4 per cent, representing an increase from 8.3 per cent recorded six months ago.

This uptick can be attributed to a combination of factors, including the completion of new office supply coupled with negative absorption in the market.

In the aftermath of the COVID-19 pandemic, the Canberra office market has faced its share of challenges, despite maintaining relatively low vacancy rates. Unlike the rebounding markets in Queensland and Perth, Canberra's office vacancies continue to rise, though not as sharply as those in Sydney and Melbourne.

The prevalence of remote work practices among both public and private sector employees has raised concerns about the vibrancy of the Civic centre. This shift in work patterns has put considerable strain on local businesses, as reduced foot traffic and office occupancy levels impact their viability. The persistent "work from home" trend is forcing a reassessment of the traditional office environment and its role in Canberra's urban landscape.