OLDER office buildings in the Perth CBD are likely to require a major overhaul, as rising vacancies and new office blocks threaten their ability to maintain and attract tenants.
OLDER office buildings in the Perth CBD are likely to require a major overhaul, as rising vacancies and new office blocks threaten their ability to maintain and attract tenants.
With up to 250,000 square metres of inner-city office space coming onto the market by late 2012 - complete with very high tenant pre-commitment levels - there is a widespread view older buildings will suffer.
CB Richard Ellis senior director of office services, Andrew Denny, said older buildings would be refurbished, demolished or converted into hotels or residential premises.
"The vacancy concentrates in the older buildings," Mr Denny told WA Business News.
But he said there was potential for rising vacancy rates to subside quickly, as economic conditions improved.
"There are a few doom-and-gloom predictions; 20 per cent plus is just ridiculous," Mr Denny said, referring to vacancy rate forecasts.
"It can turn around again very, very quickly."
A Property Council of Australia report released early this month found that 70,000sqm of new office space and falling demand had driven the CBD vacancy rate from 1.3 per cent in January to 8 per cent in July.
In Perth's other main commercial property market, West Perth, vacancies jumped from 1.9 per cent to 6.1 per cent over the same six-month period.
Leasing agents expect this rate to peak at around 15 per cent in two to three years' time, although some have estimated vacancy rates would hit the mid-20s.
Property Council of Australia WA chief executive Joe Lenzo said the current situation was similar to that experienced in the early 1990s, where a number of older buildings were refurbished and/or turned into apartments.
"There's no doubt that some of the older stock will struggle to maintain their vacancy at a reasonable level," Mr Lenzo said.
He said vacancy rates would diminish as the pipeline behind the current work was empty.
There is precedence for office to hotel conversions in Perth, with the $3.85 million conversion of Commercial Union House to what is now known as Somerset St Georges Terrace, completed in mid 1999.
It's widely expected the Old Treasury Building is to be redeveloped, as are the ABC Building on Adelaide Terrace and the Western Power building on Wellington Street.
The merger between BankWest and Commonwealth Bank - with the former scheduled to move from St Georges Terrace to Raine Square - and the proposed merger of iron ore assets between BHP Billiton and Rio Tinto will almost certainly free up more space in the CBD.
Jones Lang LaSalle national director of office leasing, Warren Wright, said companies were inclined to squeeze staff into their existing premises during periods of low vacancy.
"It will be interesting to see how they react when there is more [space] on the market," he said.
Leasing agents told WA Business News they expected the demand from major projects such as Chevron's Gorgon natural gas development to contribute to a recovery.