Demand for quality space sees vacancy decline and spike in building refurbishments

Landlords attract tenants to older buildings by undertaking extensive refurbishments.

Now more than ever, the changing needs of workers as younger generations join the workforce, and focus on businesses lessening the impact they are having on the environment, are impacting tenants’ choice of office location and quality.

The first movement towards occupation of better quality buildings started in the year 2000 with the implementation of NABERS rating by the Commonwealth Government.

Since that time, Canberra has seen a steady increase in A-Grade stock in the market. According to PCA data, A-Grade vacancy in Canberra CBD has more than halved in the past 24 months, decreasing from 8% to just 3.2%. The Parliamentary Precinct has experienced an even bigger drop over the same period, from 13.1% to just 1%. This is resulting in rental rate increases and a decline in incentives.

Michael Ceacis, Director of Office Leasing at Colliers International said, “With a continuing trend of tenants seeking better quality offices and limited new buildings coming to market, we’ve seen a spike in the number of buildings being refurbished.

“Landlords are looking to attract tenants to older buildings by undertaking extensive building refurbishments. Building upgrades are not limited to modernising their buildings, but focus on improving building amenity, increasing building performance to make tenants more comfortable, lowering tenancy costs and decreasing a building’s environmental footprint.

Civic Quarter Canberra

“Where this is most evident is in the CBD and Parliamentary Precinct”, said Michael.

Colliers International data shows that by 2020, Canberra’s CBD will have two new office buildings completed, injecting a total of approximately 30,000sqm of A-Grade office space into the market.

“We have no doubt that these new buildings will quickly attract quality tenants seeking to upgrade from lower grade office accommodation,” Michael said.

“We’ve seen a significant drop in A-Grade vacancy over the past couple of years and with limited stock coming to market, we expect this to have greater impact on B-Grade stock levels over the next couple of years.”

PCA data reveals only a slight drop in Canberra vacancy in the past 24 months from 13.4% to 12.8% in the CBD and 15.3% to 12.3% respectively in the Parliamentary Precinct.

“The trends we’re seeing in the market, combined with our knowledge of stock being refurbished and new buildings being built, we expect to see an increase in overall vacancy in the Canberra market by 2020.

“A-Grade stock will still be in high demand we expect vacancy to remain low, with tenants either forced to stay put or look to occupy higher quality or refurbished B-Grade stock.  

“Majority of vacancy will be in B-Grade or lower, and this is partly due to the Department of Immigration and Border Protection vacating space buildings in the CBD.

“We expect the Parliamentary Precinct A-Grade vacancy to tighten even further and the impact on overall vacancy in the precinct could reach as low as 5%.

“The outlook for the Belconnen Town Centre is not expected to change with larger tenants likely to remain. Conversely, some work needs to be done to make Woden and Tuggeranong more attractive to tenants which will benefit businesses located in those town centres, said Michael.

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