According to Nic Purdue, Director of Commercial Sales for Savills Canberra, 2017 saw a significant volume of investment activity (>$10m).
“One of the largest transactions ever recorded in the Canberra market was the sale of 50 Marcus Clarke Street to Mirae for $321m.
“Purchasers chasing returns started looking at core-plus and value-add opportunities which led to increased competition for secondary assets, however most investor interest in Canberra still centre around long leases to the Commonwealth Government.”
A number of standout transactions occurred including EG Funds acquisition of two Department of Finance assets and 42 Macquarie Street in Barton.
“Prime Yields compressed from 6.25% in 2016 down to 5.5% towards the end of the year. A number of assets with long term Commonwealth leases have interested buyers below 5.5% although few are available to purchase.
Underlying shift in the leasing markets, economic performance of Canberra and the scarcity of opportunities in other capital cities have been the main drivers for 2017.
In 2018, Mr Purdue expects yields will continue to compress for core product with investors re-rating Canberra.
“Flow of funds into Canberra is likely to continue across all commercial assets classes while long-leased assets with strong government covenants and new builds will trade at mid 5’s.
“Value-add opportunities, particularly hotel conversions, will be hotly contested by interstate groups and offshore interest is likely to remain however these buyers are changing their Canberra mandates and increasingly moving up the risk curve,” he said.
According to Pip Doogan, Director, of Office Leasing for Savills Canberra, in 2017, Canberra has seen overall vacancy rate significant fall by 1.6% to 11.4% as at July 2017 from the July 2016 where the rate was at 13.0%.
“The CBD A Grade market has proven to be one of the best performing markets overall in Canberra, with net absorption of 5,165sq m for the 12 month period ending 30 June 2017.
“Gross face rents as at Q3/Q4 2017 typically range between $410/sq m and $490/sq m for A Grade buildings, and between $370/sq m and $405/sq m for good quality, B Grade buildings.
“A Grade rents and incentives have, until recently, remained relatively stable. The outlook for ‘C’ and ‘D’ buildings in Canberra continues to remain depressed,” she said.
Looking ahead to 2018, new buildings coming online within the CBD, owners targeting tenants with lease expires in A and B Grade stock can potentially leave holes in outgoing buildings.
“Tenants will be more demanding for spec fit-outs as incentive which has been evident by motivated owners of multi tenanted assets.
“Owners with whole building Commonwealth Government tenants are approaching their tenants to try and renegotiate new deals long before the initial lease expiry and secondary stock in town centre markets will still continue to be challenging.
Ms Doogan anticipates new funds acquiring stock and kicking off leasing campaigns in 2018.
“The amount of B Grade stock within the CBD and particularly in Barton stock (in Barton) has shown that owners are refurbishing their buildings to a similar standard.