Canberra office vacancy rates to grow as new completions enter the market

Three new office projects will bring over 45,000sqm of new stock.

In a report, JLL projects that the office vacancy rate in Canberra will trend upwards over 2024. This will be driven by the completion of new office developments, totalling 45,610 sqm across three office projects.

“We project that the trough in prime yields will be at the end of 2024 with some further yield softening for lower-quality prime stock in the back half of 2024. There remains a bid-ask spread for transactions, but this is gradually narrowing,” the report said.

Here’s more from JLL:

Canberra recorded -1,308 sqm of net absorption over the quarter, driven by the consolidation of smaller occupiers (<1,000 sqm). This negative result was partially counterbalanced by the expansion of the Australian Electoral Commission.

We recorded the Canberra prime vacancy rate increasing from 7.3% to 7.4% and the secondary vacancy rate decreasing from 12.2% to 12.0% over Q2 2024. The fall in the secondary vacancy rate was driven by withdrawal activity.

Withdrawal activity pushes down total stock

We recorded no office completions and one withdrawal, which was at 21 Thynne Street (1,325 sqm) in the Canberra office market. There is currently 122,435 sqm of stock under construction across seven projects in Canberra.

The largest project under construction is 15 Sydney Avenue (35,000 sqm), which is scheduled for completion in Q4 2025. The asset is fully pre-committed by the Australian Taxation Office.

Prime yields soften due to elevated cost of debt

Prime net effective rents increased 0.6% over the quarter and have increased by 1.2% over the past year. Quarterly effective rent growth was driven by an uplift in face rents. Secondary net effective rents remained unchanged over the quarter.

Prime yields in Canberra softened by 25 bps on the upper end to range between 6.50%–7.75% over Q2 2024. The softening is a reflection of a shift in investor sentiment because of the elevated cost-of-debt environment.