Supply of stock in Perth’s suburban office market may nearly double that of West Perth’s over the next four years, according to research from property agency Knight Frank.
Supply of stock in Perth’s suburban office market may nearly double that of West Perth’s over the next four years, according to research from property agency Knight Frank.
About 690,000 square metres of office space is either under construction or proposed for Perth’s suburbs, equating to just less than half of the total space that will be available in the CBD in 2013, and almost double the amount expected in West Perth.
Among the biggest contributors to new stock will be developments at Perth Airport and Belmont, with a combined 200,000sqm of space proposed or under construction.
Leederville and Innaloo will each provide an additional 100,000sqm, while a further 80,000sqm will become available in each of Herdsman and Jandakot.
With the first of the new office projects in Perth’s CBD due for completion next year, some property analysts have questioned whether the suburban office market will be sustainable in the longer term.
Knight Frank director corporate consultancy Bret Madden said an oversupply of stock could be expected in some suburbs, with the exception of more established areas such as Leederville and Herdsman.
“There’s a high likelihood of an oversupply in the suburban market, which is potentially subject to greater volatility than the CBD,” he said.
“This will probably happen between 2010 and 2012.” However, Mr Madden said it was difficult to predict take-up of supply because strength of demand would largely be determined by economic growth in WA.
He said that, while rising petrol prices would make suburban centres more attractive through reduced transportation costs for employees, tenants would still be inclined to seek out space in the CBD if it was available.
“If a large vacancy turns up in the Perth CBD, tenants will come back to the city due to a flight to quality,” Mr Madden said.
He said suburban areas needed to achieve a critical mass of at least 50,000sqm of office space in order to generate perpetual demand for stock, while suburbs that already offered social amenities had an advantage.
“In the medium term, over the next two to three years, suburbs like Innaloo, Stirling and Leederville will take pressure off the CBD,” Mr Madden said.
“Midland, Joondalup, Armadale and Rockingham as hubs would be potentially sustainable in the long term.” Jones Lang LaSalle WA research analyst Andrew Bouhlas said while there was room for significant growth, he expected the suburban market to reach a more modest 400,000sqm.
“It has the potential to be that big, but the market will determine how quickly it comes on,” he said.
“There is the potential for oversupply, but it will be kept in check by construction costs and labour shortages.” Mr Bouhlas said while there had been some speculation of a potential oversupply in Herdsman, it had failed to eventuate, with office buildings at 67 and 71 Walters Drive fully leased, and strong interest in Macquarie Bank’s project at 133 Hasler Road.
However, he said some suburbs were unlikely to achieve their projected growth, as small developers would be reluctant to proceed without tenant commitments.
Mr Madden said development would also be hampered by financial constraints.
“What will probably hurt developers is the availability and cost of credit, which will affect the syndicates and the institutions equally,” Mr Madden told WA Business News.
