5 constitution ave
Artists impression of 5 Constitution Ave. Image supplied.
  • Fourth successive quarter of positive net absorption in the nation's capital
  • Overall, the market nationally recorded a contraction of 0.2% during Q122
  • Some leasing decision will be on hold now due to the election

Following a fourth successive quarter of positive net absorption during the first quarter of 2022, Canberra has recorded its lowest office vacancy rate since 2008.

On a national level, positive absorption occurred of 14,200 sqm occurred across the CBD office markets during the quarter, resulting in 163,300 sqm over the 12 months to March 2022.

The national CBD office market recorded a contraction of 0.2% taking it to 13.5% during the quarter.

JLL’s Head of Office Leasing – ACT, Andrew Balzanelli, noted the majority of net absorption was concentrated in prime grade space – 33,000 sqm for 2021.

“We saw an increase in office leasing activity in Q1 2022, particularly in March,” he said.

“We have seen a 29% increase in Tenant Representation briefs coming to market YTD compared to January-March 2021, with a 117% increase in demand from Feb-March recording 13 briefs in March for 23,425 sqm of space.

“The public sector continued to drive leasing demand in 1Q22, with the ACT Government fully occupying significant preleased space.

“With the upcoming Federal election to be held in a matter of weeks, we anticipate a flat quarter of leasing activity for the remainder of 2Q22 as the government has now entered caretaker mode and leasing decisions are put on hold.

Andrew Balzanelli, JLL

“However, demand from the private sector is likely to remain stable, particularly from groups.”

Hybrid working influencing demand for smaller spaces

JLL’s Office Leasing Associate Director, Troy McGuinness, said the first quarter had shown demand and deal activity particularly strong for the under 500 sqm leasing market.

“There has been an influx of enquiry for smaller “start-up” sized accommodation from established service providers in these industries, including groups that already have a footprint in Canberra,” he said.

“Further, activity in the sub 150 sqm category has tapered, suggesting that many businesses are still piloting working from home models as well as looking for opportunities in coworking environments as people return to the workplace.”

Base rental growth is occurring in A-Grade and better-quality B-Grade stock.

0.6% prime net effective rent growth occurred during the quarter, driven by face rent while incentives remained stable.

Aaron Green, JLL’s Office Leasing Director, added that defence, government, cyber security and government-facing professional services represented the key growth sectors in the territory.

Defence and Commonwealth security tenants have shown the most aggressive growth trajectories, with significant commitments to new market supply.

He noted the renovations of 3 Constitution Avenue (9,000 sqm) and 15 Constitution Avenue (7,500 sqm) both of which were completed in 1Q22, and now are fully occupied by the ACT Government.

“The supply pipeline is forecast to be strong for the remainder of 2022, with the creation of new precincts and hubs the focus for developers. The backfill vacancy of some assets is anticipated to push the vacancy upward, said Mr Green.

“However, the capital city will remain Australia’s tightest CBD office market over 2022, given the remarkable resilience of the Canberra market. JLL Research projects the headline vacancy rate to remain in the single-digit territory over the next three years.”

161,000 sqm of space under construction across eight developments in Canberra is currently being tracked by JLL Research, including 5 Constitution.

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