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      The Office and Commercial Real Estate Market – Canberra

      Trends you must know when renting an office in Canberra

      The Canberra commercial real estate market operates on a completely different dynamic to that of the other Australian capital cities as its is driven almost entirely by the government sector.

      According Savills, the government and community sector accounts for 93% of all leased stock in Canberra. The remaining 7% is comprised of IT &T and property and commercial services firms.[1]  Consequently leasing activity in Canberra is contingent upon government spending and the size of the public service workforce.

      Most of Canberra’s office stock (45%) is located in Civic- situated on the opposite shore of Lake Burley Griffin to Parliament House and linked to the Parliamentary district via Constitution Avenue. This 1.5 km² area is fringed by green space and planning regulations have capped building heights at relatively low levels[2]. Street cafes abound and Canberra’s CBD has a more relaxed vibe than its interstate counterparts.

      Other important business hubs in Canberra include the Parliamentary precinct and the Airport.

      Canberra’s headline vacancy rate hit an all-time high this year. Overall office vacancies were 15.2% as of June 2015, up from 13.6% in June 2014.[3] The increase came off the back of an unfortuitous combination of overhanging supply and slowing demand.

      Over the past decade Canberra experienced one of the nations’ busiest development pipelines. Building activity in Canberra continued throughout the GFC despite slowing dramatically elsewhere.

      Canberra’s office stock increased by 1.4% in the 2014-2015 financial year- making it Australia’s second fastest growing commercial real estate market next to Perth.[4] Some major developments to come on line recently include 1 Canberra Avenue and 2 Constitution Avenue.[5]

      On the flipside, leasing demand has been constrained by ongoing public sector downsizing. Commercial real estate professionals point to a ‘flight to quality’ which has seen vacancies in secondary buildings jump to over 17% .Furthermore large volumes of unoccupied space at the airport continue to drag on the market.[6]

      Despite the subdued conditions, rents have remained relatively stable –albeit with higher incentives. According to Savills net face rents in Civic are currently in the following range;

      A Grade:                                 $328 to $390 per square meter per annum

      B Grade:                                 $283 to $305 per square meter per annum[7]

      Looking forward, the consensus is that rents in the A Grade category will hold up. However rentals for secondary grade properties are likely to slip backwards as government departments migrate to new buildings with strong ‘green’ credentials and tenants are lured to better premises by the generous incentives on offer. [8]

      For organisations looking to rent an office in Canberra the current environment presents a great opportunity. The onus is on land lords to provide attractive deals in order to lock in quality tenants, particularly in the unloved Secondary Grade categories.[9]

      Prospective tenants should however ‘strike while the iron is hot’. Most commentators believe the cycle is ‘bottoming out’. The supply pipeline has dried up with no new buildings scheduled for completion in the near future. At the same time significant volumes of Secondary Grade stock could be withdrawn for conversion to student accommodation etc[10].

      Meanwhile industry commentators anticipate that demand for office space will gradually improve as the government lifts a hiring freeze and private sector activity gains momentum. Indeed Colliers have already observed some ‘green shoots’ such as an uptick in leasing activity in Civic and the Parliamentary precinct and increasing demand for smaller spaces (sub 1,000 sqm).[11]

      Not only is Canberra’s office market experiencing the nationwide trend towards smaller office space and sub-leasing, co-working space is making its presence felt. Established chains like Servcorp and Regus have a solid foothold and more recently co-working hubs such as BrainSpace, WOTSO Workspace and Entry 29 have opened their doors.

      [1] Savills – Briefing: Canberra Office, October 2015, P6
      [2] Wikipedia, Civic, Australian Capital Territory
      [3] Savills – Briefing: Canberra Office, October 2015, P7  
      [4] [4] Savills – Briefing: Canberra Office, October 2015, P1  
      [5] Knight Frank – Canberra Office Market Overview, March 2015, P2
      [6] [6] Knight Frank – Canberra Office Market Overview, March 2015, P4  
      [7] Savills – Briefing: Canberra Office, October 2015, P9  
      [8] [8] Savills – Briefing: Canberra Office, October 2015, P10  
      [9] Colliers CBD Office – Second Half 2015, P33
      [10] Colliers CBD Office – Second Half 2015, P33
      [11] Colliers CBD Office – Second Half 2015, P33  
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