International investors eyeing off commercial property in Canberra: JLL report

Canberra is now on the radar of international investors who are being drawn by the stability of properties with long-term government tenants.

Sector expert, JLL, explains the drivers behind the trend in a recent report: “Why has Canberra emerged on the international radar?”

JLL’s ACT managing director Andrew Balzanelli says key investment drivers for the Canberra office market include investor bias toward low risk assets, a forecast rental upswing and a low vacancy rate.

“Multiple capital sources are seeking to increase exposure to the Canberra market while domestic investors with a national focus see the advantages of a tactical exposure,” he says.

“Our leasing market is improving and the prime grade vacancy rate is just 6.4 per cent – the lowest of any monitored CBD office market.”

The headline drivers are supported by an irrefutable truth of the Canberra market – it is backed by the stability and security that government tenants offer. Aside from that, there are economical upticks that further add to the investor gloss.

“Risk averse investors are seeking exposure to assets with strong covenants which provide security of income over a long-term investment horizon,” Balzanelli says.

“Added to that, face rents are starting to move higher, while incentives have started to ease. Prime net effective rents as of the first quarter of 2017 are 3 per cent higher than the same time last year.”

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Tenant demand, too, is strong for A-grade assets in Canberra and the prime grade vacancy rate has compressed to 6.4 per cent.

“It is currently the tightest of all CBD office markets in Australia,” Balzanelli says.

JLL’s head of research Australia, Andrew Ballantyne, says signs augur well for property owners.

“The scarcity of contiguous prime space options in Barton and Civic along with a lack of new supply has played a role in the increase in prime net effective rents,” he says.

Prime grade vacancy in both Barton (4.4 per cent) and Civic (4.6 per cent) remains low because of persistently strong demand for prime space by local and federal government departments.

Mr Balzanelli says demand from tenants for flight to quality continues to be a factor in decision making in the Canberra office market.

“There are three office building refurbishment projects under way in Canberra, two of which are in the Civic precinct,” he says.

“Buildings with low energy efficiency ratings might be required to undergo an upgrade and refurbishment to secure a large Commonwealth occupier moving forward.”