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RESEARCH
Key Facts
As at January 2019, Canberra’s overall vacancy rate measured
11.0%, its lowest level since July
2012, stemming from withdrawals and positive
absorption.
Sales of $336.8 million were transacted in the 12 months to
January 2019, fuelled by
improved buyer depth.
Over 60,000 sq m of new office
stock is currently under
construction, with 80% already
pre-committed to Government
and corporate tenants.
Tight vacancy in the Civic and Parliamentary precincts has
increased prime gross face rents
by 1.8% YoY to $475/sq m.
Record withdrawals making way for
alternative uses The Canberra office market experienced
record levels of withdrawals over 2018,
with 85,810 sq m withdrawn from the
market. This has primarily been driven by
owners converting assets to alternative
uses such as residential and aged
facilities. Withdrawals over the second half
of 2018 stemmed from 45 Benjamin Way
(10,796 sq m partial refurbishment), 9
Thynne Street, Bruce (1,987 sq m—
residential conversion), 470 Northbourne
Avenue, Dickson (1,371 sq m—retail
conversion) and 30 Hibberson Street
(1,600 sq m—childcare conversion). This
has resulted in negative net supply of
59,192 sq m over 2018.
New supply on the horizon New supply was limited over the second
half of 2018 at 11,508 sq m. Whilst new
supply was constrained over 2018, the
market awaits a number of projects
currently under construction which will
add over 60,000 sq m of new supply
across five developments. Over 80% has
been pre-committed to both Government
and private tenants, with this expected to
rise prior to completion.
Developments include the Capital Airport
Groups Constitution Place project Bld 1
20,000 sq m pre-committed to the ACT
Government, Bld 2 12,000 sq m recently
fully committed to corporate tenants,
due for completion by late 2020; and 13-
15 Challis Street, Dickson (13,000 sq m
pre-committed to the ACT Government)
due for completion in early 2020.
Additionally, Amalgamated Property
Group’s speculative development at
Civic Quarter (16,000 sq m), due for
completion at the end of 2019 and
reportedly experiencing strong interest.
Senior Analyst
Follow at @KnightFrankAu
Supply Additions and Withdrawals
Per six month period (000’ sq m)
-100,000
-50,000
0
50,000
100,000
150,000
200,000
Jan
-09
Jan
-10
Jan
-11
Jan-1
2
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan-1
7
Jan
-18
Jan
-19
Gross Supply Withdrawals Net Supply
2
Source:
Withdrawals and DoHA reshuffle
tightens vacancy Significant withdrawals over 2018 in
conjunction with positive absorption
levels in the second half of the year has
resulted in the overall vacancy rate
tightening from 12.4% to 11.0% in the
six months to January 2019, 110bps
lower than the 10 year average of 12.1%.
Split by grade, the prime market reached
its lowest level in 10 years of 5.2% as at
January 2019, down from 8.5%, fuelled
by the above average absorption levels.
The secondary market remained static
with a slight uptick in vacancy from
16.1% to 16.3% over the six months to
January 2019. On an annual basis
secondary vacancy has declined from
17.1%.
The Civic and Parliamentary Precinct A
grade markets remain the tightest
precincts, recording vacancy levels of
1.7% and 0.1% respectively. Whilst town
centres increased from 5.2% to 7.6%
over the second half of 2019. The
biggest movement came in the Airport
precinct with vacancy dropping from
31.2% to 12.2% due to the DoHA
occupying their new headquarters.
Steady rental growth
Tightening A grade vacancy in Civic and
the Parliamentary precincts, coupled
with strong absorption in the six months
to January 2019, has underpinned rental
growth. Across the A grade Civic and
Parliamentary precincts, gross face rents
increased by 1.8% to $475/sq m ($401/
sq m net) in the 12 months to January
2019.
Canberra Office Market Indicators - January 2019
Grade Total Stock
(sq m)
Vacancy
Rate (%)
Annual Net
Absorption (sq
m)
Annual Net
Additions
(sq m)
Average
Gross Face
Rent ($/sq m)
Outgoings
($/sq m)
Average
Incentive
(%)
Average Core
Market Yield (%)
A Grade
Civic (City) 299,888 1.7 8,427 0 478 73 19.5 6.00-6.50
Parliamentary 261,910 0.1 794 0 471 74 17.8 6.00-6.50
Town Centres 240,286 7.6 -22,609 -11,915 405 65 24.5 7.50-8.00
Other 311,097 11.1 48,546 6,330
Secondary
Civic (City) 357,524 21.0 -23,983 -11,257 411 88 24.0 6.75-7.75
Parliamentary 195,543 18.5 2,249 8,943 416 72 20.0 6.50-7.50
Town Centres 224,121 22.1 -7,968 -39,463 332 67 29.5 9.00-10.50
Other 427,541 8.2 -4,939 -11,830
Total Market 2,317,910 11.0 517 -59,192
Canberra Vacancy Major Precincts* Per six month period (%) - by grade
The reshuffle saw the DoHA consolidate
from multiple locations across Civic and
Belconnen and taken expansion space
at its new Headquarters at 3 Molonglo
Drive occupying 37,800 sq m. This has
resulted in prime absorption levels of
28,222 sq m in the six month to January
2019 across the Canberra market, whilst
the secondary market recorded negative
absorption of 1,950 sq m.
Tenant enquiry remains driven by large
briefs from Government Departments
including the Department of Agriculture
seeking c32,000 sq m of new space and
Department of Human Services recently
coming to market for 18,200 sq m in
Tuggeranong. The upcoming Federal
election may temper absorption levels in
the near term.
Mooted developments pending
pre-commits
Looking ahead, there is over 250,000
sq m of potential developments in the
pipeline all pending either DA Approval
or pre-commitments. More specifically,
Capital Airport Group has three
proposed developments to add a
further 60,000 sq m to the Airport
precinct. The relocation to the Airport
by the Australian Cyber Security
Department and the Department of
Home Affairs (DoHA), has rejuvenated
the precinct and is well placed to cater
for any further Government expansion
space in the future.
Department of Home Affairs
reshuffle bolsters absorption Absorption levels across the market
were predominantly impacted by the
major reshuffle of the DoHA.
0%
5%
10%
15%
20%
25%
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Jan
-18
Jan
-19
Prime Secondary
Net Absorption and Vacancy
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
40,000
50,000
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Ja
n-1
7
Jan-1
8
Jan-1
9
Net Absorption (6 months - RHS) Vacancy rate
3
RESEARCH
Civic Gross Effective Rent By Grade ($/sq m)
CANBERRA OFFICE BRIEF MARCH 2019
While the last 12 months have seen lower
overall volumes, with few large assets
trading, there continues to be strong
investor demand for Canberra, as
evidenced by a healthy turnover in the sub
$30 million range.
In June 2018, CorVal purchased the
former ATO offices in Belconnen for $23.9
million. The sale reflected a core market
yield of 11.6% and was considered an
opportunistic play by CorVal, due to the
large 3,500 sq m floor plates and scope for
residential value-add potential. Shortly
after the sale, CorVal divested 17 Moore
Street, Canberra, which they had
extensively refurbished in 2017, for $20.65
million on a core market yield of 7.95%.
Similar to prime, the secondary market
recorded YoY rental growth of 1.8% to
$414/sqm ($334/sq m net). Incentive
levels across the major Canberra
precincts have remained steady over the
past 12 months at 21% for prime and
24.5% for secondary stock.
Rents unchanged outside CBD Outside the Civic and Parliamentary
precincts, Town Centre rents have
remained unchanged following limited
tenant activity besides the DoHA move.
As at January 2019 Town Centre prime
rents measured $405/sq m with
secondary rents also remaining
unchanged over the past 12 months to
measure $332/sq m.
Investors focus in on
opportunistic / value-add After record investment volumes of
almost $800 million in 2017, transactional
activity in Canberra has moderated
somewhat, with just $336.8 million in
transactions ($10m+) recorded in 2018.
Underscored by the sale of 50 Marcus
Clarke Street for $321 million, 2017 was a
record year with a number of large assets
trading between domestic and offshore
institutional owners.
Recent Leasing Activity Canberra
Address NLA
(sq m)
Rent
($/sq m)
Term
(yrs) Tenant Date
1 Farrell Place 400 325 7 Robinson McGuinness Mar-19
12 Moore Street 275 405 5 Pragma Jan-19
54 Marcus Clarke Street 273 430 5 Acil Allen Consulting Jan-19
243 Northbourne Ave 377 395 3 Liquid Instruments Dec-18
60 Marcus Clarke Street 429 430 5 Employers Mutual Oct-18
Core Market Yields & Spread Canberra Blended Average—Prime & Secondary
Recent Sales Activity Canberra
Address Price
($ mil)
Core Mkt
Yield (%) NLA
(sq m)
$/sq m
NLA
WALE
(yrs) Vendor Purchaser
Sale
Date
14 Moore Street 59.0 6.27 11,047 5,341 4.3 Quintessential Equity Marprop Pty Ltd Dec-18
40 Macquarie Street, Barton 29.0 6.77 5,444 5,327 5.4 Hedley Property Investments REAL IS Oct-18
14 Mort Street, Civic 51.0 6.31 9,384 5,435 6.6 Ascot Capital Soilbuild REIT Oct-18
17 Moore Street, Civic 20.6 7.95 6,118 3,375 1.5 CorVal Marprop Oct-18
They originally acquired the asset in
2011 for $19 million on a core market
yield of 10.6%. Marprop Pty Ltd has
recently acquired 14 Moore Street from
Quintessential Equity for $59 million on a
core market yield of 6.27%. The
property was first acquired by
Quintessential Equity in 2014 for $23
million and repositioned to achieve full
occupancy with a 4.3 year WALE on the
asset. Earlier in 2018, ISPT expanded
their ownership footprint in Canberra
when they acquired 6 National Circuit in
Barton for $37.5 million on a core market
yield of 6.53%.
While the big-ticket transactions seen in
2017 have tempered, the majority of
assets being exchanged recently have
occurred off-market which indicates
highly competitive bidding between
domestic and offshore buyers. Yields
have generally continued to compress
across prime and secondary assets, with
prime market yields across the CBD and
Parliamentary precincts showing a
64bps sharpening YoY to 6.15%
(average) and secondary yields to 7.04%
(-65bps). On the back of recent
transactional activity, it is anticipated
that value / add opportunistic buying will
continue, with institutional funds/trusts
and offshore groups driving activity as
they move up the risk curve.
Source:
100
150
200
250
300
350
400
450
500
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Prime Secondary
0
50
100
150
200
250
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
Jan-0
9
Jan-1
0
Jan-1
1
Jan-1
2
Jan-1
3
Jan-1
4
Jan-1
5
Jan-1
6
Jan-1
7
Jan-1
8
Jan-1
9
Spread - Prime v Secondary (RHS) Prime Secondary
4
RESEARCH CANBERRA OFFICE BRIEF MARCH 2019
Under Construction/Complete
DA Approved / Confirmed / Site Works
Mooted / Early Feasibility
NORTH
1
3
5
4
6
212
13
14
07
07
07AIRPORT
SOUTH WEST8
7
9
1011
Constitution Place^ (Bld. 2) - 12,000m²
Capital Property Group - H2 2020 -100% committed
Consitution Place (Bld. 1)^ - 20,000m² [ACT Govt]
ACT Govt/Capital Property Group - H1 2020, 100% committed
Civic Quarter, Northbourne Ave^ - 16,000m² ≈
Amalgamated Property Group - Q4 2019
5 Nangari Street, City - 1,600m²
Molonglo Group -2020+
13-15 Challis St, Dickson - 13,000m²[ACT Govt]
100% committed - 2020+
Section 96^ - 37,500m²
QIC - 2020 subject to pre-commitment
2 Darling Street, Barton - 11,500m2
Doma Group - 2020+
Section 12 (Block 9 & 10), Greenway - 35,000m²
A&S Haridemos - 2021+
25 Catalina Drive, Airport - 20,000m²
Capital Property Group - 2020+
6 Brindabella Drive, Airport - 21,000m²
Capital Airport Group - 2020+
9 Molonglo Drive, Airport - 20,000m²
Capital Airport Group - 2020+
Section 100 - 38,000m²
Morris Property Group 2020+
Balance of Civic Quarter - 35,000m²
Amalgamated Property Group 2021+
APE - 65,000m²
Amalgamated Property Group 2021+
1
2
3
5
7
8
9
10
11
4
6
12
13
14
Knight Frank Research provides strategic advice, consultancy services and forecasting
to a wide range of clients worldwide including developers, investors, funding
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Knight Frank Research Reports are available at KnightFrank.com.au/Research
Important Notice
© Knight Frank Australia Pty Ltd 2019 – This report is published for general information only and not to
be relied upon in any way. Although high standards have been used in the preparation of the
information, analysis, views and projections presented in this report, no responsibility or liability
whatsoever can be accepted by Knight Frank Australia Pty Ltd for any loss or damage resultant from
any use of, reliance on or reference to the contents of this document. As a general report, this material
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RESEARCH
Ben Burston
Partner, Head of Research and Consulting
+61 2 9036 6756
[email protected] Katy Dean
Associate Director
+61 2 9036 6612
[email protected] Marco Mascitelli
Senior Analyst
+61 2 9036 6656
OFFICE LEASING
Nicola Cooper
Partner, Office Leasing, ACT
+61 2 6221 7861
Daniel McGrath
Director, Commercial Sales &
Office Leasing, Canberra
+61 2 6221 7882
CAPITAL MARKETS
Sean North
Partner, Head of Canberra and Institutional
Sales
+61 2 6221 7868
VALUATIONS
Steven Flannery
Partner, Head of Valuations, Canberra
+61 2 6221 7881
Martin Elliott
Partner, Valuations, Canberra
+61 2 6221 7878
Front cover photo: 3 Molonglo Drive, Brindabella
* Major Precincts incorporates Civic, Parliamentary Precinct & Town Centres
Melbourne CBD Office
Market Overview
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Sydney CBD Office
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