Thanks to stronger than anticipated demand and low levels of construction in recent years, the commercial property market in Canberra is starting to turn around, the latest report says.
Continued low volumes of new stock coming onto the market will flow through to create reduced vacancy rates and a tighter market going forward, albeit with growth being restrained by subdued public sector demand.
In its latest MarketView report, real-estate services firm CBRE Australia says demand over the 12 months to March this year had been stronger than expected.
The report says that overall vacancy rates, while still high (10.9 per cent as of January, 2012), have declined throughout the city on the back of good absorption and limited volumes of new supply.
Going forward, it says, overall vacancy rates will trend slowly downward, with vacancies for grade A civic space expected to reach just three per cent by the end of this year.
CBRE Research Analyst Jonathon Smith says that while prime space with good green credentials in the civic sector continues to generate the strongest demand, absorption rates for both civic and non-civic secondary markets are higher than those for prime office space.
Markets such as Barton and Tuggeranong, Smith says, are experiencing strong demand and falling vacancy rates.
CBRE Canberra managing director Andrew Stewart agrees, saying the market is now absorbing large tracts of secondary vacancies that have accumulated over the past three years.
This trend is expected to continue, Stewart says, as a lack of new development in civic office space forces tenants to look at grade A space in the suburban markets.
Stewart cautions, however, that overall market recovery will be restrained by a ‘cautious attitude’ on the part of the federal government. He says the government is the single largest tenant in the ACT and has an influence on the Canberra office market that is ‘comparable to the mining sector in Perth’.
“Space that does not have a fit out already in place is proving particularly difficult to lease, with government departments unable to afford the large capital expense to undertake their own fit outs,” Stewart says.
In terms of investment, sales volume remains subdued. Indeed, over the past 12 months, only one transaction of any significance has taken place: the $226 million purchase in February of 50 Marcus Clarke Street by CIMB Trust Capital.
With Canberra set to benefit from its ‘safe haven’ status, however, Stewart expects transaction volume to pick up over the coming 12 months.
“Prime assets that become available remain highly sought after by investors invariably chasing long leases to government tenants,” Stewart says, while noting that “secondary assets requiring high levels of capital expenditure are in need of a development upside to attract buyers.”