Canberra records strongest year of office sales: JLL report

Canberra recorded its strongest year of office sales in 2015 as interstate-based investors proved to be key players in the capital’s commercial market.

JLL ACT’s head of sales and investments, Michael Heather, said the Canberra office market recorded $537.9 million worth of sales for transactions larger than $5 million in 2015.

JLL’s recent analysis shows six of the nine major office assets were purchased by a national investor. Alongside the interstate purchasers, there were two locally based private buyers and one entity from South Korea.

Mr Heather said the strong result represented confidence in the capital’s office market and provided an insight into pricing benchmarks.

“Investors are once again recognising that there is excellent value in Canberra relative to other capital cities,” he said.

“Canberra is considered a counter-cyclical market to Sydney and Melbourne, offering materially higher risk-adjusted returns.”

Mr Heather said the capital’s lower prices, high yields and reliable tenants presented an attractive alternative to Australia’s larger cities.

“People see the investment in Canberra as a safe option with income generated by a government tenant,” Mr Heather said.

“On the back of a strong leasing market in 2015, they’re confident about the future of the Canberra office market and the growth of the Commonwealth public service.”

Recent transactions meant average prime equivalent yields compressed by 50 basis points to between 6.5 per cent and 9 per cent, Mr Heather said.

“However, average prime equivalent yields remain 100 basis points higher than the level recorded in 2007, which means the Canberra office market currently appeals to multiple buyer cohorts,” he said.

Mr Heather said 30 per cent of commercial property in Canberra was less than 10 years old and interstate investors were typically looking for modern property.

“At the moment, the demand is being driven by the A-grade office market; the new, modern asset with a commercial tenant,” Mr Heather said.

“The A-grade leasing market is very strong. We saw in 2015 an 18,000 square metre net absorption, which was driven by the A-grade cohort of the market.”

Mr Heather said a large portion of the net absorption figure was attributed to a reduction in sublease vacancy, which fell 59 per cent in 2015 to 15,600 square metres.

Canberra has one of the highest office vacancy rates in Australia, the latest Property Council of Australia’s Office Market Report shows.

While newer and larger stock contributed to the positive result, older and smaller office vacancy rates increased in 2015.

Despite the high vacancy rates, Canberra has recorded just three negative net absorption years since 1979, JLL Research figures shows.

Mr Heather said Sydney and Melbourne recorded 12 and nine years of negative net absorption, respectively, over the same period.

Origin of major office purchasers in 2015

• 25 Cowlishaw Street, Greenway ($224.5m) – South Korea
• 255 London Circuit, City ($70.25m) – Melbourne
• 134 Reed Street, Greenway ($70m) – Melbourne
• 60 Marcus Clarke Street, City ($49.06m) – Sydney
• 33 Allara Street, City ($29m) – Canberra
• 20 Allara Street, City ($20.5m) – Canberra
• 44 Sydney Avenue, Forrest ($32m) – Melbourne
• 64 Allara Street, City ($18.8m) – Brisbane
• 54 Marcus Clarke Street, City ($14.2m) – Sydney