200,000 150,000 key facts 100,000 50,000 · 2019. 9. 5. · while institutional funds/trusts and...
TRANSCRIPT
RESEARCH
Key Facts
As at July 2019, Canberra’s overall vacancy rate measured
11.0%, unchanged since
January 2019.
Transactional investment volumes for 2019 (to July) are
running just above $338 million,
almost on par with 2018 full year
volumes.
Over the next 18 months 60,000 sq m of new supply will come to
market, all of which is fully pre-
committed.
Prime rental growth rates stabilise
as short-term market demand holds
Broadly across the market, demand levels
appear to have stabilised. This is mirrored
in the overall vacancy rate, which is
unchanged on January 2019 at 11.0%. At
a precinct level, the Civic and
Parliamentary areas remain tightly held,
especially Grade A stock.
Although enquiry levels have softened,
low vacancy and limited availability of
Grade A supply in the short-term appears
to be holding back any significant tenant
movement, stablising prime rental growth
rates.
In contrast, the continued regeneration of
secondary grade stock by landlords is
beginning to drive a slight shift across
rental metrics within the Civic and the
Parliamentary precincts, although remains
a building-by-building proposition.
Government push for efficiencies
underpins future pipeline
On the back of the Government’s
efficiency drive to consolidate office
leasing requirements, a number of large
mandates exist that could potentially be
fulfilled through the current pipeline of
new developments or refurbished stock.
There has been a high-level of pre-
commitment on new stock that is due to
be delivered over the coming 18 months,
which includes four new buildings - two
at Constitution Place, one at Civic
Quarter and one in Dickson. Combined
these projects are due to add more than
60,000 sq m of premium / Grade A office
space. Looking ahead, more than
250,000 sq m of new supply is sitting in
the pipeline either pending development
approval or pre-commitment.
Supply Additions and Withdrawals
Per six month period (000’ sq m)
-100,000
-50,000
0
50,000
100,000
150,000
200,000
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GROSS SUPPLY WITHDRAWALS NET SUPPLY
Senior Analyst
Follow at @KnightFrankAu
Associate Director
2
Source:
Overall, by grade, prime vacancy has
declined to 5.0%, its lowest level since
January 2008. However, this is due to the
withdrawal of more stock than what was
added or absorbed by the market over
the last six months.
Stock withdrawals for prime space
regeneration leads short-term
pipeline
Through the first half of the year, the
market has largely been characterised by
refurbishments and the withdrawal of
secondary style space for repositioning
programs.
45 Benjamin Way, Belconnen (c.10,796
sq m), which was withdrawn earlier this
year for a partial refurbishment, has
recently returned to the market. 5 Chan
Street, Belconnen (17,300 sq m) has now
been withdrawn for a full refurbishment
and the adjacent, 6 Chan Street for a
partial refurbishment (15,801 sq m).
These withdrawals have limited general
absorption trends and resulted in
negative net absorption of 20,922 sq m in
the six months to July 2019.
Canberra Office Market Indicators - July 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 4,518 0 478 73 19.50 ~6.00
Parliamentary 261,910 0.2 670 0 471 74 17.80 5.75-6.25
Town Centres 233,782 8.2 -23,419 -17,300 405 65 24.50 7.25-7.75
Other 311,097 9.9 44,271 1,825 0 0 0
Secondary 0 0.0 0 0 0 0 0
Civic (City) 357,524 20.5 -3,342 0 406 88 24.00 6.50-7.50
Parliamentary 193,676 17.6 8,265 -1,867 407 72 20.00 7.50-8.00
Town Centres 208,320 24.3 -62,293 -48,901 332 67 29.58 9.00-10.50
Other 427,541 8.9 89,760 2,187
Total Market 2,293,738 11.0 32,390 362
Canberra Vacancy Major Precincts* Per six month period (%) - by grade
higher inducements to achieve
occupancy, particularly in recently
regenerated space coming online. In that
regard, secondary incentives in the Civic
precinct have increased marginally, from
24% to 25.7% on average since July
2018.
Grade A vacancy remains low, limiting leasing take-up The Civic and Parliamentary precinct
Grade A market remains the tightest of all
office precincts, recording vacancy levels
of 1.7% and 0.1% respectively in the six
months to July 2019.
The Grade A vacancy rate for Town
Centres has increased from 7.6% to 8.2%
over the same period. Following a
substantial decline in vacancy in January
2019 due to the Department of Home
Affairs (DoHA) consolidating multiple
offices, the vacancy rate in the Airport
precinct has held steady at 12.6%.
Prime stabilising as secondary incentives start to shift on the back of refurbishment Prime leasing activity has eased over the
last six months as occupiers consolidate
their position in the market. As a result,
there has been limited movements in
prime rents and incentives over this
period.
In the Civic and Parliamentary precincts,
Grade A gross face rents have held over
the six months at $475/sq m ($401/sq m
net), but are showing a 0.8% increase
YoY, as at July 2019. Prime incentives
are holding at 18.7%, a theme that is also
evident in Town Centres and the Airport
precincts.
In contrast, the market has started to see
a slight shift in secondary metrics
recently. This appears to be more
apparent in Civic, than Barton, as some
landlords have been prepared to offer
0%
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15%
20%
25%
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PRIME SECONDARY
Net Absorption and Vacancy
-25,000
-15,000
-5,000
5,000
15,000
25,000
35,000
45,000
-10%
-5%
0%
5%
10%
15%
20%
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NET ABSORPTION 6 MTHS (RHS) TOTAL VACANCY RATE
3
RESEARCH
Core Market Yields & Spread Canberra Blended Average—Prime & Secondary
nearby assets, 54 and 60 Marcus Clarke
Street, which they acquired in 2015.
Late last year, Quintessential also sold 14
Moore Street to Marprop Pty Ltd for $59
million, on a yield of 6.27%. The property
was also acquired in 2014 and was
repositioned by Quintessential as part of
their strategy to regenerate assets in
strategic locations.
In June 2019, Charter Hall’s Long WALE
REIT (CLW) announced it had acquired 16
-18 Mort Street, one of the 10 assets
being sold down by Oxford Properties
Civic Gross Effective Rent By Grade ($/sq m)
CANBERRA OFFICE BRIEF SEPTEMBER 2019
Capital inflows suggest confidence
in underlying value Transactional investment volumes for
2019 (to July) are running just above $338
million, almost on par with 2018 full year
volumes.
Despite it being an election year, the level
of investment suggests that there is
confidence in the underlying market
fundamentals, particularly for core plus/
opportunistic plays.
While institutional funds/trusts and
offshore groups have been driving the
majority of investment activity, there has
also been a slight upswing in divestment
activity of regenerated assets this year.
In May 2019, fund manager Centuria
acquired the ‘Optus Centre’ at 10 Moore
Street for $35 million, on a market yield of
6.72% for its Centuria Diversified
Property Fund (CDPF). The asset was
bought from Quintessential Equity, which
has held it since 2014 when they
acquired it for $18 million from AMP
Capital. Quintessential recently undertook
partial refurbishment and repositioning of
the asset. Centuria owns two other
Recent Leasing Activity Canberra
Address NLA
(sq m)
Rent
($/sq m)
Term
(yrs) Tenant Date
42 Macquarie Street 280 440 5 Isentia Aug-19
12 Moore Street 187 425 5 Annex Digital July-19
243 Northbourne Avenue 273 395 5 NSW Business July-19
64 Northbourne Ave 292 430 7 NDIS May-19
73 Northbourne Avenue 476 460 5 Kinetic Aug-19
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, Canberra 59.0 6.27 11,047 5,341 4.3 Quintessential Equity Marprop Pty Ltd Dec-18
121 Marcus Clarke Street,
Canberra (50%) 102.9 5.63 25,714 8,003 4.9 MTAA Super 121 MCS Pty Ltd Mar-19
24 Wormald Street, Symonston 29.8 6.52 4,720 6,303 8.6 Westtech Holdings Investec Australia Mar-19
Finlay Crisp Centre 62.0 U/D 28,518 2,174 Dexus SC Capital Partners Apr-19
10 Moore Street, Canberra 35.0 6.72 6,709 5,217 4.3 Quintessential Equity Centuria Capital May-19
16-18 Mort Street, Canberra 108.5 5.68 14,146 7,670 6.6 Oxford Property Group Charter Hall Jun-19
from the former Investa Office Fund as
part of a $1.5 billion divestment plan. The
property sold for $108.5 million on a
passing yield of 6.75% and was
predominantly leased to Telstra with a 6.6
year WALE at acquisition date. CLW
acquired the Canberra asset, as part of a
portfolio, including an office asset in
Sydney and a 50% interest in a Brisbane
industrial property.
Investec Australia Property Fund (IAPF)
has expanded their footprint in Canberra
after picking up 24 Wormald Street,
Symonston for $29.75 million in March
this year from a local private investor. The
property was purpose-built for the
Commonwealth Government (Attorney-
General) and sold with a 8.3 year WALE.
The acquisition increases IAPFs exposure
to the Canberra market from 7% to 10%.
The strong appetite for both income-
security and value-add assets has
continued to place downward pressure on
yields. Average prime market yields in the
CBD and Parliamentary precincts are
showing a 38bps sharpening YoY to sub
6.00% and secondary yields to 6.73% (-
64bps).
Source:
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450
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PRIME SECONDARY
0
50
100
150
200
250
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
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4
RESEARCH CANBERRA OFFICE BRIEF SEPTEMBER 2019
Under Construction/Complete
DA Approved / Confirmed / Site Works
Mooted / Early Feasibility
NORTH
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#VALUE!
AIRPORT
SOUTH WEST8
7
9
1011AIRPORT
SOUTH WEST8
7
9
10
Constitution Place^ (Bld 1) - 20,000m2 [ACT Govt]
Capital Property Group - H2 2020 - 100% committed
Constitution Place^ (Bld 2) - 12,000m2 ≈
Capital Property Group - H2 2020 - 100% committed
Civic Quarter, Northbourne Ave^ - 16,000m2 ≈
Amalgamated Property Group - Q4 2019
13-15 Challis St, Dickson - 13,000m2 [DKSN Site]
100% committed - 2020+
5 Nanagari Street, City - 1,600m2
Molonglo Group - 2020+
Section 96^ - 37,500m2
QIC - 2020 subject to pre-commitment
2 Darling Street, Barton - 10,900m2
Doma Group - 2020+
Section 12 (Block 9 & 10), Greenway - 35,000m2
A & S Haridemos - 2022+
25 Catalina Drive, Airport - 25,000m2
Capital Property Group - 2021+
6 Brindabella Drive, Airport - 21,000m2
Capital Airport Group - 2021+
9 Molongo Drive, Airport - 20,000m2
Capital Airport Group - 2021+
Section 100 - 38,000m2
Morris Property Group - 2022+
Balance of Civic Quarter - 35,000m2
Amalgamated Property Group - 2022+
APE - 65,000m2
Amalgamated Property Group - 2021+
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Knight Frank Research provides strategic advice, consultancy services and forecasting
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Important Notice
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RESEARCH
Ben Burston
Partner, Chief Economist
+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: 21 Genge Street, Civic * Major Precincts incorporates Civic, Parliamentary Precinct & Town Centres
Sydney City Fringe
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June 2019
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2019