APS leases expiring in 2022 could leave Canberra offices without tenants for years

There are already fears agency movements could leave a glut of office space in the Canberra market which will take years to fill.

With some moves potentially taking public servants away from the city centre, Civic and its retailers could end up suffering from a loss of vibrancy and activity.

The likely moves we know about include major agencies with large workforces, such as the Tax Office and Department of Agriculture, Water and the Environment which are seeking to consolidate their various offices.

The Defence Department are also searching for up to 65,000 square metres of office space and are looking to replace their long standing home at Campbell Park.

Other agencies and departments known to be looking for new accommodation around the capital include Veterans' Affairs, the Civil Aviation Safety Authority, the Clean Energy Regulator, and the ACCC.

Synergy Group director Stephen Oxford, who consults with government on property matters, said the number of leases expiring within a short period in 2022 could wreak havoc on the market.

"This could be disastrous for owners, if they lose their key tenant in these larger leases there isn't a lot of Commonwealth demand for a few years," Mr Oxford said.

"Another problem is the message it sends to international investors when Commonwealth entities only commit for a single term. Especially when the buildings are purpose built to respond to an entity's needs, they are designed for a single large tenant and are not easily repurposed."

The simultaneous expiring leases mean agencies will likely choose to move into newly constructed buildings rather than repurposing existing offices which will take too long if they have previous tenants, Mr Oxford said.

Raine and Horne Canberra executive director of commercial sales and leasing Michael Ceacis said if each of these agencies opted to enter brand new offices it would add up to 250,000 square metres of vacant space to the Canberra market.

"This could almost double the current vacancy rate," he said.

"I believe that some of the departments currently in the market will take existing buildings which will lessen the impact, however the current vacancy rate is expected to increase over the next few years to around 15 per cent."

Mr Ceacis said there wasn't enough A-Grade accommodation in Canberra for what the Commonwealth desired. This is echoed in department pitches for new buildings, where they regularly argue only a new build would suffice.

However, Mr Ceacis said there were many opportunities for current stock to be repurposed to suit the Commonwealth's needs. It typically costs $120 to $150 more per square metre to lease a new building rather than retrofitting an existing one, Mr Ceacis said.

A new building does offer the Commonwealth some opportunities to consolidate offices and find efficiencies such as in security and IT infrastructure which could be delivered in one building rather than across several.

"[But it] creates a challenge for secondary stock that would need to be refurbished, upgraded, repositioned and leased again," Mr Ceacis said.

"With minimal demand in the foreseeable future, these assets could take [years] to be fully leased again."

Mr Oxford said while there were certainly opportunities for owners of older buildings to secure lease extensions and new tenants, the reality was that very competitive rates on new buildings required existing owners needed to be aggressive to attract business.

The critical issue facing the market is how to repurpose the larger buildings constructed with a specific agency's needs in mind, especially as more purpose-built offices continued to be built.

"The new developments are good for the local market in the short term, but it is difficult to see where the demand is coming longer term," he said.

"With 200,000 square metres vacant, we would need around 20,000 additional workers to fill these offices."

Solely comprised of Commonwealth public servants this would require a 30 per cent increase in employees to fill the vacancies and while private sector diversity could help make up some of this shortfall it still carries significant risks.

It's these large leases, like the ATO lease that worry me," Mr Oxford said.

"If the ATO was to relocate away from the city, that would take 4,000 public servants away from the Canberra Centre and I think damage the vibrancy of the city centre.

"There is no point spending money at a local government level planting flower beds and making spaces attractive, if the people that use these spaces leave. I think you would see retailers really suffer if this happens."