How Canberra's office leasing market weathered the pandemic

Canberra’s office market remained resilient in the face of a level of national uncertainty in the second quarter of 2022, according to commercial leasing leader Colliers international.

The Colliers Australian CBD Office Snapshot Q2 2022 revealed the Canberra market had successfully weathered an environment shaped by a pandemic background, an erupting war in Eastern Europe, tightening lending conditions and rising inflation, all ahead of a federal election in May.

Fundamental to Canberra’s Q2 leasing performance is its unique safety net, characterised by the size and stability offered through a wealth of federal government tenancies.

This base is further underpinned by scores of quality tenancies housing cohorts of consultants and contractors, mainly serving the public sector.

Colliers International Canberra’s director of office leasing, Aaron Bruce, says while the local market has been relatively quiet in the first six months, its underlying strength ensures it is primed to take advantage of future upticks in market conditions.

“The market typically goes into a kind of pause in lockstep with the government caretaker period ahead of a looming federal election,” he says.

“It can take even more time after the result is known before we get back to business as usual. In the current environment, that may be after the federal budget is brought down on October 25.”

Bruce says that may provide many government departments and agencies with certainty around their funding and that will be when they are able to review their accommodation options.

Looking ahead, he says about 41,347 square metres of new completions and refurbishments of office space will be added to the market before the end of the year, most of that already committed.

“Another big mover will be the Department of Agriculture, which is moving into new accommodation in Civic Quarter 2 [CQ2] very soon,” Bruce says. 

That will release nearly 30,000 square metres of backfill. The new development of One City Hill is likely to add a similar volume in 2023.

Vacancy in the Canberra Civic market dramatically shrank to 6.1 per cent in January this year from 12.8 per cent a year earlier and the rate is likely to remain compressed with limited office space available. 

“I think this is likely to move after the budget and in coming months as these new developments and refurbishments are completed,” Bruce says.

As for rents, A-grade office rents and incentives remained unchanged from Q1 2022 due to limited prime office space, but the big winner has been B-grade gross face rents, which have experienced four consecutive quarters of growth, delivering an annual increase of 7.3 per cent as of Q2 2022, the highest annual growth since 2009. 

A-grade office buildings are high-quality builds with excellent amenities such as parking, space and management within a prime location, whereas B-grade assets offer well-equipped builds but might lack high-end features.

Bruce says the growth has been driven by owners investing in property upgrades and refurbishments to heighten their appeal to potential tenants.

Colliers’ director of capital markets, Matthew Winter, says $174 million in office sales was made in the second quarter of 2022. 

“It underscores that investors recognise the stability presented by the Canberra market and that they are willing to pay a premium to secure a solid asset,” he says.