Why Canberra recorded -1,300sqm office net absorption in Q1

The headline vacancy rate increased to 7.8% in the same period.

The Canberra office market recorded a net absorption of negative 1,300 sqm over the quarter. According to a JLL report, the key driver of this was Air Services offering 9,500 sqm of sublease space to the market in 25 Constitution Avenue over 1Q23. 

As a result of this negative demand, the headline vacancy rate increased by 0.8 percentage points (ppts) to 7.8% over the quarter. 

“This negative result was partly counterbalanced by NDIS relocating into pre-committed space (6,500 sqm) at the recently-completed 90 Denison Street, having vacated 1 Bowes Place (1,170 sqm),” the report added.

Here’s more from JLL:

One office completion totalling 8,000 sqm was recorded over the quarter. The asset at 90 Denison Street, Deakin, was 80% pre-committed at practical completion.

We are currently tracking 35,000 sqm of supply under construction across one development in Canberra. Section 63 has a completion date in late 2023, and has not secured any pre-commitments as at the end of 1Q23. 

Uplift in incentives results in a fall in effective rents

Prime net effective rents decreased by 1.7% over the quarter. The decrease in effective rents was driven by an uplift of 0.3 ppts in prime incentives to 25.1%. Incentives are at their highest level since JLL began tracking this metric in 1987. 

The Canberra office investment market recorded one transaction over 1Q23. 21 Genge Street was sold by Real IS to Charter Hall for AUD 290 million. 

Outlook: Public sector demand is expected to remain robust

The public sector is expected to remain a key driver of positive demand going forward, although it is also anticipated that private sector small tenants (sub-500 sqm) will contribute to this positive leasing story as well. However, economic uncertainty could dampen some private sector tenants’ relocation decisions, particularly as they have to get sign-off offshore.

Over the short term, incentives are projected to slowly rise in anticipation of new office developments that will result in a large portion of backfill vacancy becoming available over the next few years. Face rents are anticipated to continue recording steady growth.