New supply in Canberra’s office market over the next few years will give occupiers the opportunity to secure A-grade space in precincts that have historically had limited  availability, according to the latest research from Knight Frank. 

Knight Frank’s Canberra Office Market – September 2024 report found that increase in vacancy in Canberra from 8.3% to 9.5% over the first half of 2024 had been driven by supply rather than a lack of  demand. 

The first half of 2024 saw 37,030sq m of space added to the Canberra office market, taking the total  office stock base to its highest level on record of 2,397,006sq m.  

Over the next two years, new development stock of around 115,000sq m is forecast for delivery.  

Developments include 9-11 Molonglo Drive (19,333sq m), 15 Sydney Avenue (37,000sq m), 23 National  Circuit (4,500sq m), 62 Constitution Avenue (20,000sq m) and Morris Property Group’s One City Hill  (34,086sq m). Additionally, Cromwell Corporation's development at 19 National Circuit (18,128sqm) is  anticipated to be delivered by the end of 2027.

Knight Frank Partner, Managing Director ACT & Head of Agency Nathan Dunn said the steady  development pipeline would provide occupiers with the opportunity to have options for A-grade space  in precincts that have historically had limited availability. 

“While vacancy has ticked up in Canberra’s office market as a result of greater supply, overall vacancy  is still below its 10-year average of 11% and is the lowest of the major capital cities, along with the  Brisbane CBD,” he said. 

“Some sought-after areas have very low vacancy in prime space – for example, Barton is near non existent at 0.5% - and developments such as 15 Sydney Avenue and 23 National Circuit will provide  greater options in this area for tenants. 

“Like other markets around Australia, we have seen strong demand for A-grade office space due to  the flight to quality trend and in Canberra we have seen a sustained level of demand for prime space  from government tenants in particular.” 

The report also found that positive occupier demand, from both public and private sector tenants, in  Canberra’s office market had led to steady rental growth.

In the Civic and Parliamentary precinct, prime net face rents have increased by 2.4% to $457/sq m  ($564/sqm gross) over the last 12 months to July 2024. Similarly, in the secondary market annual net  face growth of 2.3% was recorded, with rents now averaging $363/sq m ($471/sq m gross).  

Average prime incentives in the Civic and Parliamentary precinct remain at all-time highs, measuring  26.5%. As a result, prime net effective rents have increased by 2.1% to $307/sq m. Incentives are  anticipated to remain at current levels for the medium term.  

Mr Dunn said for new developments, the sheer cost base for construction was driving gross face rents  to levels not yet seen before in the ACT, anecdotally at least, to $200 per square metre or more higher  than existing A-grade stock.  

He said that while the ACT office market is proving to be resilient, there were some uniquely Canberran challenges landlords would have to navigate moving forward to keep occupancy up. 

“There is a looming “two-tier” rental market,” he said. 

“Although new build supply is limited, the few sites that will have soil turned in the next three to five  years will have a completely different rent base than existing stock, caused by elevated construction  costs, which then makes anything under a certain economic rent untenable to construct. This will start  to drag the market rents northwards and we are already seeing evidence of this. 

“Australian Public Service (APS) Department Heads have been told in no uncertain terms to downsize their reliance on contractors, and you can now start to see the on-flow effect of this. Private Sector firms  reliant on Government work are looking for shorter term lease deals, shorter renewals, and certainly  exploring rationalization options.  

“However, vacancy still sits at the lowest level nationally of all core markets, equal with Brisbane.