CBD stock shortage

Offshore buyers are increasingly interested in Perth office stock, but limited assets for sale and the city’s rising vacancy rate are stifling opportunities.

Office sales in the 12 months to the end of September this year totalled just $287 million, according to a report released earlier this month by commercial real estate agency Savills.

The majority of that $287 million was over two assets, which collectively sold for $181 million – 130 Stirling Street and the Septimus Roe office tower, which were sold to Singapore-based buyers Hiap Hoe and Far East Organisation, respectively.

The offshore purchases were in stark contrast to the record-breaking 2013, when there was $1.51 billion worth of sales, all to domestic buyers.

During the past five years, just 11.2 per cent of total sales have been made to overseas purchasers, according to Savills research.

Savills said the lack of transactions in 2014 was more a result of a lack of stock for sale rather than a lack of buyer interest.

Just one major asset is currently listed for sale in the CBD – 220 St Georges Terrace.

The 10-storey, 9,197 square metre building is being marketed by Knight Frank on behalf of owner 220 St Georges Terrace Pty Ltd, a company directed by Tina Bazzo, the de facto spouse of one of the state’s biggest property moguls, Allen Caratti.

St Georges Terrace Pty Ltd purchased the building for $60 million in November 2007.

The other factor stifling investment in Perth office assets, according to BIS Shrapnel chief economist Frank Gelber, is the rising vacancy rate.

The Property Council of Australia said in August Perth’s vacancy rate had increased to 11.8 per cent, up from around 9 per cent in January, but Mr Gelber said BIS Shrapnel forecasts showed it would blow out to 18 per cent once the next wave of office development was completed.

Research released last week by JLL showed Perth’s office vacancy had already jumped to 14.7 per cent, with 15.8 per cent of the CBD’s A-grade buildings sitting vacant.

JLL head of office leasing Nick Van Helden said he expected the peak to come in at 16.4 per cent next year.

While the forecasts differed in the estimated peak, Mr Gelber said Perth’s rising vacancy rate meant assets did not stack up for potential investors.

“The leasing market is oversupplied,” Mr Gelber told a recent BIS Shrapnel building forecasting conference in Perth.

“Building is strong, there is increased supply over the next few years and it’s coming at a time when (leasing) demand is weak.”

Mr Gelber said the predominant reason for the increasing vacancy rate stemmed from a contraction in business services to support the slowing resources sector.