Office market holds steady after 'turbulent' year for government leasing

The latest Office Market Report by the Property Council of Australia found a modest increase in the number of vacant office spaces in Canberra. But most of the empty space could be found in the city's ageing buildings.

Canberra's vacancy rate, which measures office spaces without a lease in place, increased slightly from 8.2 per cent to 8.3 per cent in the second half of 2023.

It was the second-lowest vacancy rate among the capital cities, behind Hobart at 2.8 per cent, and below the national average of 13.5 per cent.

Property Council ACT and Capital Region executive director Shane Martin said the results were largely positive.

"While an increase in our office vacancy rates isn't what we want to be seeing, small fluctuations are to be expected and we are still faring comparatively well from a national perspective," he said.

The majority of Canberra's vacant office stock was in C- and D-grade buildings, which are generally older, more affordable spaces.

There was 12.7 per cent vacancy in D-grade stock and 12.5 per cent vacancy in C-grade stock, the report found.

Vacancy was lowest in B-grade offices at 5.8 per cent, while A-grade buildings were 7.4 per cent vacant.

Troy Markos, director of office leasing at CBRE, said 2023 "laid the roadmap" for the next few years.

He expected the trend towards premium offices to continue, particularly with major government office moves to come.

Last year there was "pent-up demand" for new premium offices, which were not readily available, Mr Markos said. Some corporate tenants opted to stay put for the meantime, in anticipation for new office supply to become available in about 2026.

There was also hesitation from some tenants to invest in a new fit-out, which could be seen as a "sideways move" if there was no immediate pressure to relocate and the landlord offered a competitive deal, Mr Markos said.

He said the federal government experienced a "turbulent year" in 2023 after two office deals fell through.

The Department of Employment and Workplace Relations and Australian Electoral Commission are urgently seeking a new office space after their plans to move into a new-build Civic building fell through.

The Department of Infrastructure, Transport, Regional Development, Communications and the Arts and Austrade are also expected to look for a new home this year, after their planned relocation to One City Hill on London Circuit did not eventuate.

Meanwhile, more than 100,000 square metres of office space is expected to be added to the Canberra market between now and 2026.

Among the major projects in the pipeline is 18 Marcus Clarke Street, part of ISPT's Pathway Place refurbishment, expected to be completed in early 2024.

Doma's new-build office for the Australian Tax Office in Barton and Capital Airport Group's new addition to Brindabella Business Park are both due to be completed in the first half of 2025.

As tenants seek out energy efficient, modern buildings over ageing offices, the property industry faces the challenge of how to fill the empty spaces.

Mr Martin said there was potential for offices to be left "stranded" in the CBD.

"It's now time to consider what we can do with these assets before they become empty," he said.

He said refurbishing existing offices was key to bringing workers back to the CBD, but said there were opportunities to convert unused offices into apartment buildings.

"If we can get the planning controls and tax incentives right, we'll have the opportunity to breathe new life into these existing assets and use them to create the additional housing we so desperately need," Mr Martin said.