- Canberra's office vacancy rate remains the lowest among eastern seaboard capital cities at 8.9% as of January 2023
- Rental growth continues in Canberra, with A-grade net face rents in Civic and Parliamentary precincts increasing by 4.7% year-on-year
- Investors remained active in 2022, with $1.1 billion in transactions across the office market, seeking Canberra assets due to its blue-chip tenant profile and competitive yield advantage
The Canberra office market has shown impressive resilience and growth, with an 8.9% vacancy rate making it the tightest market of the east coast capital cities according to Knight Frank’s Market Report.
There’s also a large pipeline of new developments set to contribute to the expansion of the market, while rental growth continues to show a positive trajectory.
Despite a slight increase in the vacancy rate from 8.6% six months prior, Canberra’s office vacancy remains below its 10-year average of 11.6% the report said.
This is mainly due to high demand from government tenants for A-Grade stock and an uptick in private sector demand for smaller suites and the sub-500 sqm market, both of which have led to a reduction in secondary vacancy rates.
The report said that in 2022, Canberra’s office market experienced the largest influx of new supply in over a decade, with 113,467 sqm added to the market in the 12 months leading up to January 2023.
The majority of this new supply was made up of prime stock, driving the A-grade vacancy rate up to 7.3%. This has led to an increase in prime vacancy rates in the airport precinct and the civic precinct.
Rental growth in Canberra has remained steady, with civic and parliamentary precinct A-grade net face rents increasing by 4.7% year on year to measure $443/sqm ($541/sqm gross) as of January 2023. Secondary rents have also increased by 2.7% to measure $353/sqm ($455/sqm gross face). Incentives for prime leases in the civic and parliamentary precincts remain at all-time highs, measuring 26%. With a steady pipeline of new development stock, there is scope for incentives to rise slightly further as landlords look to attract new tenants and seek pre-commitments.
Investors have been actively involved in the Canberra office market, with $1.1 billion in transactions across the market in 2022 the report said.
The blue-chip tenant profile and competitive yield advantage against Eastern Seaboard capital cities have attracted investors to Canberra assets. Notable transactions include Charter Hall’s acquisitions of Geoscience HQ and 21 Genge Street and Investa’s purchase of 220 London Circuit.
However, higher funding costs and inflationary pressures have led to a softening of yields. The average prime office yield has softened by 78bps to 6.1%, while secondary assets have increased by 105bps to 7.3%. Further softening of yields is expected throughout the year as the impact of higher funding costs filters through the market.