Canberra to see 72,700sqm of new office stock in 2024

Analysts expect tenants to relocate from the older offices to the newer buildings.

The Canberra vacancy rate is projected by JLL to trend upward over 2024, driven by the completion of new office stock (totalling 72,700 sqm). 

Newer office buildings in the market are expected to lease well, and it is expected that tenants will relocate out of older-style office accommodations, which could be earmarked for withdrawal and repositioning.

Here’s more from JLL:

Further yield softening is expected over the next 12 months. The yield spread between prime and secondary assets is expected to widen. In particular, older-style secondary grade assets are likely to have elevated vacancy risk, which will be priced accordingly. 

Small tenants support demand

Canberra recorded positive net absorption of approximately 1,500 sqm over Q4 2023, mainly driven by small tenant (<1,000 sqm) leasing activity. 

As a result of the positive demand, the Canberra headline vacancy rate decreased 0.2 percentage points (ppts) to 7.8% over Q4 2023. The prime grade vacancy rate decreased by 0.8 ppts to 5.8% over the quarter. The secondary grade vacancy decreased by 0.4 ppts to 11.7% over the quarter. 

Completions over 2023 well below long-term trend

We recorded no completions and one withdrawal (totalling 3,072 sqm) in the Canberra office market. There is currently 2.2 million sqm of total stock as at Q4 2023. We recorded 13,000 sqm of completions over 2023, well below the 20-year average of 66,100 sqm. There is currently 100,600 sqm of stock under construction in Canberra with completion dates between 2024 to 2026. 

The largest project under construction is 15 Sydney Avenue (35,000 sqm) which is scheduled for completion in Q2 2026. The asset is fully pre-committed by the Australian Taxation Office. The second largest project under construction is 1 City Hill (33,000 sqm), which is scheduled for completion in Q1 2024. 

Prime yield softens due to elevated cost of debt

Prime net effective rents marginally decreased 0.2% over the quarter and have decreased by 2.8% over the past year. Prime face rents have continued to grow over the past year (1.0%), which has been offset by an uplift in incentives to 25.6%. Secondary net effective rents decreased 1.8% over the quarter, driven by an uplift in incentives. 

Prime yields in Canberra softened 50 bps on the upper end and 25 bps on the lower end to range between 6.00%-7.50%. The softening reflects a shift in investor sentiment because of the elevated cost-of-debt environment and global macroeconomic uncertainty. 

Note: Canberra Office refers to Canberra's office market (all grades).