Canberra almost topples Sydney for office rent growth

Canberra outperformed almost every office market in Australia in 2016, according to CBRE.
Canberra outperformed almost every office market in Australia in 2016, according to CBRE.

Canberra emerged as the surprise best performer of Australia’s office markets last year with the national capital ­second only to Sydney in delivering rent growth in the last quarter, according to a new analysis by CBRE.

Sydney had the highest net ­effective rental growth of 5% in the closing months of the year but was closely followed by Canberra at 4.8%.

CBRE associate research director Felice Spark says the results came as the Australian office cycle reached bottom, with the national office vacancy having peaked at 10.9% at the end of 2016.

Commercial Insights: Subscribe to receive the latest news and updates

“Brisbane and Perth are both considered to have reached their peak vacancy at the end of 2016, at 17.1% and 21.8% respectively, with Brisbane now at the bottom of the rent cycle and Perth expected to reach the bottom during 2017,” Spark says.

Melbourne had net effective rental growth of 2% in the final quarter of the year but Canberra surprised most by recording the strongest white collar employment growth in the country. ­“Increased demand from the ­public sector and limited vacancy in the prime end of the Civic ­precinct will all serve to support a positive outlook for the Canberra office market in the medium term,” Spark says.

Only limited new office space will come online this year, following two years of heavy supply in which just less than 500,000sqm of office space was added.

Occupier ­demand is expected to be solid in 2017 and we are forecasting the national office vacancy rate will decline to 9.9%

With Cromwell Property Group’s Tuggeranong Office Park the only development under way, CBRE is forecasting the Canberra vacancy will decline to 7.8% by 2020.

Tightening vacancy in the Civic precinct and the lower ­vacancy outlook is expected to lead to 5.5% compound ­annual growth in effective rents over the next three years.

CBRE’s head of office leasing for Pacific, Andrew Tracey, says this is the first time in 20 years that such a small level of annual net supply has been added to ­national office markets.

“All CBD markets have limited new supply coming on line in 2017 and the level of activity in the fourth quarter of 2016 was a big ­rebound,” he says. “Occupier ­demand is expected to be solid in 2017 and we are forecasting the national office vacancy rate will decline to 9.9% by year’s end given the lack of construction activity.”

Vacancy rates are expected to tighten in all markets, most notably in Sydney, where the vacancy is expected to be just 3.5% by the end of the year.

This article originally appeared on www.theaustralian.com.au/property.