Decrease in demand for ACT office space

The Property Council of Australia’s latest Office Market Report shows vacancy rates have declined over the past six months in the Canberra market, despite negative demand.

However, the commercial leasing sector remains confident that demand for office space will increase now that the Commonwealth – which represents over 50 per cent of the market in the ACT – gets on with new whole-of-government leasing arrangements.

“Over the six months to July 2018, Canberra’s overall vacancy rate decreased slightly from 13.2 per cent to 12.5 per cent over the six months to July 2018 – slightly higher than the vacancy rates recorded 12 months ago at 11.6 per cent.

“Of all capital cities, our vacancy rate sits fourth highest after Perth, Adelaide and Brisbane.

The vacancy rate in Civic remained relatively steady, dipping from 11.3 per cent to 10.5 per cent – up from 9.4 per cent in January 2017,” ACT Executive Director, Adina Cirson said.

“The decrease in vacancy is solely due to withdrawal of stock, with a significant 65,368 sqm withdrawn and -25,755sqm net absorption recorded in the capital.

“That said, the Australian vacancy rate sits at 9.1 per cent, and we remain well above the optimal vacancy rate of 6 per cent,” Ms Cirson said.

Positive demand for A Grade office space further tightened vacancy rates from 8.8 per cent to 8.5 per cent due to 6,936sqm of net absorption and 1,546sqm of withdrawal, showing continued improvement. B Grade vacancy rates increased to 12.6 per cent from 8.9 per cent
12 months ago.

“In both C and D grade office stock we saw a welcome decrease in vacancy, with the market reporting 63,822sqm of withdrawals over the period.

Across the entire market, some refurbished stock has become available which could place pressure on owners to increase incentives to tenants. Commercial agents are also recording an increase in smaller tenancies under 500sqm.

“Whilst there is clearly a demand for smaller, premium office product, overall we are seeing a bit more of a holding pattern in demand.

This potentially is due to the Federal Government’s change in procurement processes for office space to a whole of government approach, which has seen a slow-down in inquiries over the last nine months in particular.

“That said, business sentiment is strong, and we expect an increase in office demand over the medium term as whole of government processes are bedded down – particularly amongst businesses seeking outsourcing opportunities with the Commonwealth,” Ms Cirson concluded.

Source: Property Council of Australia