Capital Property Group’s new building proposed for the CBD, but it will need a major Commonwealth tenant. Image: JPW.
A growing office vacancy rate in Canberra’s CBD should be ringing alarm bells for government and business about the economic viability of the city, according to the Property Council of Australia.
Its Mid-Year Office Market Report out today (7 August) shows office vacancy in Canberra increased from 9.2 to 10.7 per cent, mainly due to the addition of 54,000 square metres of new office space since January.
This was below the national average of 14.3 per cent, but the vacancy rate in the city is much higher at 14.1 per cent.
Property Council ACT & Capital Region Executive Director Ashlee Berry said supply was now outpacing demand and the situation in the CBD, which is already under pressure from light rail works, was particularly alarming.
The Property Council reiterated its calls for a renewed focus on Civic vibrancy, including incentives for adaptive reuse of buildings, better support for businesses affected by light rail construction, and a more substantial return of staff to the office across government and the private sector.
Ms Berry said there needed to be renewed drive to increase demand and new policies to re-energise the CBD,
“We’ve seen new buildings come online, with more supply in the pipeline,” she said. “That’s good for tenants and the long-term future of the market, but we’ve got to keep demand growing too.
“That means rethinking how we attract businesses, support amenity, and get more people back into the city.
“The challenge is making sure the city centre remains a place where people want to invest, work and spend time.”
Managing Director of Australian Strategic Property Advisers Stephen Oxford says tax and planning constraints need attention. Photo: ASPA.
Australian Strategic Property Advisers Managing Director Stephen Oxford said that without enough new Commonwealth tenants, the CBD could be strewn with stranded assets.
He said agencies were moving out of the city to Barton and there were only a few big Commonwealth lease procurements left, such as the Department of Employment and Workplace Relations, and little corporate demand.
Morris Property Group’s 30,000 sqm One City Hill development remains empty, and construction is expected to commence on Capital Property Group’s 62,700 sqm office space in the law courts carpark by year-end, despite no tenant being secured.
“It’s time for a real rethink about what we are going to do with buildings in our CBD if they’re no longer going to be offices,” Mr Oxford said.
He said that meant looking at the tax settings relating to lease variation charges and more flexible planning rules to allow a broader range of uses.
However, it was challenging to adapt buildings constructed with large, efficient floor plates to suit public service tenants for other purposes.
“You’ve got a 2000 square metre floor plate and the average private sector requirement is for spaces between 200 and 500 sqm,” Mr Oxford said.
“You just can’t break up buildings in that way.”
It was also difficult to convert them to apartments, student accommodation, or vertical schools because of the tax and planning constraints.
Mr Oxford said the Commonwealth exodus to Barton had exacerbated the situation.
In Barton, a new Tax office headquarters is nearing completion, DFAT will consolidate its city staff in a new building on National Circuit, and the National Security Office Precinct is underway.
“You’re talking about thousands of people coming out of the CBD into a non-town centre, so from a planning perspective it makes very little sense in terms of the infrastructure to support a large workforce in Barton,” he said.
But the city did have the infrastructure and it’s underutilised.
Mr Oxford said the Commonwealth agencies had made those decisions to move but it would be the ACT that would have to deal with redundant assets left behind.
