The public sector is driving the strong demand for Canberra office space, as vacancy rates fall again in the capital.
New data released by JLL Research showed Canberra's vacancy rate dropped to 5.5 per cent for the first quarter of 2022, compared to 5.7 per cent the previous quarter.
The vacancy rate refers to whether a lease is in place, not whether the tenant's employees are occupying the space or working from home.
Canberra's vacancy rate was 7.6 per cent in the first quarter of 2021 and 8.9 per cent in 2020.
Canberra's prime vacancy rate, which looks at A-grade office space, dropped to 2.8 per cent in the first quarter.
The data reveals Canberra has the tightest office market of the capital cities. Sydney follows with a vacancy rate of 12.3 per cent.
Andrew Balzanelli, JLL head of office leasing, ACT, said government departments drove Canberra's leasing demand in the first quarter.
"With the upcoming federal election to be held in a matter of weeks, we anticipate a flat quarter of leasing activity for the remainder of quarter two, 2022 as the government has now entered caretaker mode and leasing decisions are put on hold," he said.
"However, demand from the private sector is likely to remain stable, particularly from groups that win government contracts and need to grow headcount."
Defence and cyber security are some of the emerging tenants, JLL office leasing director Aaron Green said.
"Defence and Commonwealth security tenants have shown the most aggressive growth trajectories, with significant commitments to new market supply," he said.
"The supply pipeline is forecast to be strong for the remainder of 2022, with the creation of new precincts and hubs the focus for developers. The backfill vacancy of some assets is anticipated to push the vacancy upward.
"However, the capital city will remain Australia's tightest CBD office market over 2022, given the remarkable resilience of the Canberra market."
The JLL Research team anticipates Canberra's headline vacancy rate will remain in the single digits over the next three years.
According to the group's project tracking, an estimated 161,000 square metres of office space is under construction across Canberra.
Morris Property Group's $380 million One City Hill project in Civic is among one of the largest developments in the pipeline, with some 34,000 square metres of floor space in the works.
Nearby, 12,000 square metres of office space is expected to come online in the third quarter of the year when the refurbishment of 5 Constitution Avenue is complete.
The building forms part of the wider Central Village precinct, formerly known as the Finlay Crisp Centre. The precinct's other two office blocks reopened earlier this year and are fully tenanted by the ACT government.
A number of proposed developments could also add more stock to Canberra's office supply, including a 10-storey office block on Northbourne Avenue and 20,000 square metres of commercial space earmarked for Woden.
