2023-03-14-莱坊-Canberra_Office_Market_March_2023_6页_2mb

Canberra Office Market Summary - March 2023

Core Content Overview

This report provides an analysis of the Canberra office market as of January 2023, highlighting key trends in supply, demand, rental growth, investor activity, and yield changes. It also includes details on recent property transactions and upcoming developments.

Main Market Trends

Vacancy Rates

• Overall vacancy rate increased slightly to 8.9% as of January 2023, still the lowest among eastern seaboard capital cities.
• Secondary vacancy dropped to 11%, its lowest level since 2012, driven by increased private sector demand for smaller spaces.
• A Grade vacancy rose to 7.3%, up from 6.6% in the second half of 2022, primarily due to new supply from the airport precinct (16.9% vacancy).
• Prime vacancy in the Civic precinct increased to 7.0%, while Parliamentary precinct remained at 1.4%.

Rental Growth

• A Grade net face rents in the Civic and Parliamentary precincts increased by 4.7% y/y to $443/sqm.
• Secondary rents grew by 2.7% to $353/sqm.
• Net effective rental growth for prime assets was 3.6% to $299/sqm, driven by high incentives and strong demand.

New Supply and Developments

• 2022 saw the largest supply injection in a decade, with 113,467sqm added to the market, 95% of which was prime stock.
• New development completions (including refurbs) totaled 48,724sqm for the six months to January 2023.
• Civic Quarter Stage 2 (33,000sqm) was the largest new development, completed in H2 2022 and 100% committed.
• Upcoming developments over the next 18 months include:
  • 90 Denison Street, Deakin (7,000sqm)
  • 9-11 Molonglo Drive, Airport (19,463sqm)
  • One City Hill (34,086sqm)
  • Section 96 (37,000sqm, expected by 2026)

Investor Activity

• Total investor transactions in 2022 reached $1.1 billion, across 8 assets.
• Canberra's blue chip tenant profile and competitive yields compared to Eastern Seaboard capitals made it attractive to investors.
• Notable transactions:
  • Charter Hall acquired Geoscience HQ for $363.5 million, with a core market yield of 5.13% and 9.9-year WALE.
  • Charter Hall also purchased 21 Genge Street for $290 million, with a core market yield of 7.34% and 5.1-year WALE.
  • Investa added 220 London Circuit (Constitution Place) to its portfolio for $272.48 million, leased to the ACT government with a 16.8-year WALE and core market yield of 4.25%.

Yield Trends

• Prime yields in the Civic and Parliamentary precincts softened by 78bps to 6.1%.
• Secondary yields increased by 105bps to 7.3%.
• Town centre yields softened by 87bps to 7.7%.
• Further yield softening is expected throughout 2023 due to higher funding costs and inflationary pressures.

Key Insights and Analysis

• New supply has been a major driver of market dynamics, especially in the prime sector.
• Government tenants continue to be a key demand source, but private sector interest in smaller spaces is growing.
• Incentives in the Civic and Parliamentary precincts remain at all-time highs (26%), helping to maintain rental growth.
• The market remains attractive to investors due to its stable tenant base and competitive yields.

Recent Tenant Commitments

• Several tenants have signed long-term leases, including:
  • Kinsella at 26 Brisbane Avenue, Barton (290sqm, 510$ /sqm, 8 years)
  • Gosource at 15 London Circuit, Civic (431sqm, 470$ /sqm, 7 years)
  • CTO Group at 26 Brisbane Avenue, Barton (282sqm, 515$ /sqm, 7 years)
  • Sparke Helmore at 224 Bunda Street, Civic (980sqm, 450$ /sqm, 8 years)
  • Tencent at 60 Marcus Clarke Street, Civic (425sqm, 450$ /sqm, 3 years)
  • Omnia Inclusive Employment Solutions at 64 Northbourne Avenue, Civic (227sqm, 450$ /sqm, 3 years)

Conclusion

The Canberra office market continues to show resilience, with steady demand, competitive yields, and strong tenant activity. While new supply has increased vacancy rates in certain areas, the market's blue chip tenant profile and positive rental growth remain strong attractions for investors. Yield softening is expected to continue, but the market's fundamentals and development pipeline suggest long-term value and opportunity.

Contact Information

• Marco Mascitelli – Research
  +612 9036 6656
  Marco.Mascitelli@au.knightfrank.com
• Naki Dai – Research
  +612 9036 6673
  Naki.Dai@au.knightfrank.com
• Martin Elliott – Valuations
  +612 6221 7878
  Martin.Elliott@au.knightfrank.com
• Nicola Cooper – Office Leasing
  +612 6221 7861
  Nicola.Cooper@au.knightfrank.com
• Ben Schubert – Capital Markets
  +612 9036 6870
  Ben.Schubert@au.knightfrank.com