Leasing activity in the Parliamentary precinct over the past six months has resulted in a decrease in A-Grade office vacancy, hitting a 10 year low to just 1.2 per cent.
This is in contrast to the slight drop in Canberra CBD vacancy, largely due to the withdrawal of a number of C and D-Grade buildings.
Colliers International Director of Office Leasing Michael Ceacis said the uptake of A-Grade office space is due to tenants seeking quality office accommodation, resulting in a significant tightening of the office market.
“Landlords are now offering reduced incentives. Early last year 25 per cent incentives were being offered and now we are seeing 15 per cent or lower. Face rents in Barton are increasing and A-Grade office space is being leased for more than $440 per square metre," he said.
“We’re finding that tenants currently occupying C and D-Grade office space in the Parliamentary precinct are looking to stay within the area but in better quality accommodation.
"This year we’ve already spoken to a number of tenants with a total requirement of over 10,000 square metres of office space in A-Grade buildings and there isn’t enough supply to meet this demand," Mr Ceacis said.
Tenants looking to upgrade are seeking office space with a minimum of 4.5-star NABERS Energy rating with good natural light, end-of- trip facilities, good car parking ratio and close to amenities.
The office market is expected to tighten further with no new A-Grade stock planned in the short-term.
According to Colliers International research, there are only a handful of buildings that could potentially be repositioned to meet A-Grade standards in the area.
Landlords willing to spend the capital expenditure needed to upgrade their buildings are securing tenants. 44 Sydney Avenue, Barton is an example of a recently refurbished office building that has met tenant expectations and is now fully occupied.
Colliers International Office Leasing Executive Aaron Bruce said several key sites in Barton have been developed in the past 5 years into residential and hotel accommodation, such as Little National Hotel and the Governor Place precinct.
“The development of mixed-use precincts in the immediate locale has provided additional benefits to office tenants, introducing many new retailers and food and beverage operators," he said.
“This has helped with the retention of existing tenants in the area as well as attracting new tenants, however the knock on effect is that only a very limited number of sites remain in the Parliamentary precinct which can be developed with new office buildings.
“We’re seeing an increase in demand and very limited future options to meet supply requirements,” Mr Bruce said.
The latest PCA data reported there are 3,348 square metres of A-Grade office space available for lease in the Parliamentary precinct.
Colliers International said they expect tenants to flee to quality and limited supply to result in further tightening of A-Grade stock, driving incentives down even further and an increase in rental rates.
Limited supply is also expected to positively impact B-Grade stock as tenants miss out on securing A-Grade space.