The Australian newspaper today has published research from BIS Shrapnel predicting big increases in office vacancy rates and falling property prices in the event that an Abbott-led Coalition Government follows through with its pledge to slash the Commonwealth bureaucracy:
“Our most likely scenario anticipates a cut of 5000 jobs in Canberra, occurring mostly through 2014 and 2015,” said the study’s author Christian Schilling…
If the job cuts are made, BIS Shrapnel expects vacancy rates to be more than 11 per cent in Canberra’s Civic and above 14 per cent across the metropolitan area…
The knock-on effect would be a fall in rents and property values, BIS Shrapnel noted.
“Depending on the severity of the cuts, it could tip the market into severe downturn” Mr Schilling said.
The worst possible scenario outlined in the report was 12,000 public service jobs slashed – about 11 per cent of Canberra’s office workforce.
About 216,000sq m of the city’s office space would be left empty and there would be double-digit vacancy rates for the following decade, according to BIS Shrapnel…
It’s worth noting that the Shadow Treasurer, Joe Hockey, announced in his Budget Reply Speech that a Coalition-led Government would cut the bureaucracy by at least 12,000 via natural attrition. As such, the threat to the Canberra property market is real, and is not limited only to office and commercial property.
As noted previously, Canberra dwelling values took a battering during the Howard Government’s first term, falling by 7% over two years on the back of job cuts and lower confidence. The difference this time around is that the ACT has recently gone through an apartment construction boom, which has already led to rising rental vacancies, falling rents, and falling unit values according to APM (see next chart).
To make matters worse, Canberra has one of the highest concentrations of property investors in the country. According to the 2010-11 ATO Taxation Statistics:
- 17.4% of ACT taxpayers own an investment property that loses on average $7,863 per year; and
- 12.7% of ACT taxpayers own a negatively geared (loss-making) investment property that loses $13,750 per year.
Overall, it’s looking like a particularly bad time to be a landlord in Canberra, with the public sector facing sharp cuts to employment just as increasing supply is coming online. This could create selling pressure, particularly among investors that lose their jobs, are negatively geared and are effectively paying their investment property a dividend in the hope that it repays them with capital growth.
