Office vacancy rates in Perth’s central business district have edged higher while the West Perth rate has jumped sharply, and both sectors face the prospect of even higher vacancy rates as demand remains subdued.
The Property Council’s latest Office Market Report found the office vacancy rate for the CBD increased to 6.9 per cent in July 2013, up from 5.7 per cent in January.
There were two contributors to the rise – demand for office space fell by 12,500 square metres, as many businesses cut staff numbers and trimmed costs, and supply increased by 9,144sqm.
The main contributor to the new supply was GDI Property Group’s refurbishment of the office buildings on Mill Street.
The trends were more stark in West Perth, where the office vacancy rate rose to 7.6 per cent in July, up from 4.5 per cent in January.
Demand in West Perth fell by 5,720sqm, while 7,328sqm of new office space was added.
The largest addition was 100 Havelock Street, which counts Australian Finance Group as its major financier and main tenant.
Property Council executive director Joe Lenzo said demand for premium grade offices in newer CBD towers in Perth remained strong, however demand for space in older buildings weakened, which contributed to the overall rise in vacancies during the past six months.
He noted that the Perth CBD vacancy rate was the lowest of any Australian capital city; the average across all cities was 10.1 per cent and the highest was Brisbane with 12.8 per cent.
However the Property Council estimates are notably lower than other estimates by property consultants, which use different methodologies.
Y Research, for instance, has estimated the West Perth vacancy rate is actually 11.3 per cent.
The Property Council report also excludes new buildings in areas such as Northbridge and West Leederville, which are competing for tenants but fall outside its traditional boundaries.
Future demand for office space is likely to remain subdued, as a result of mining projects being cancelled and big iron ore expansions being finalised over the next year or so.
On the supply side, there will be a very small addition to space in the CBD in the second half of 2013, with just 3,838sqm coming onto the market.
Most of this is from the new building at 1006 Hay St, overlooking the Mitchell Freeway.
There will be a larger boost in 2014, when 33,692sqm comes onto the market. Golden Group’s refurbishment of the May Holman Centre and Aurecon’s project at 863 Hay Street are the main contributors.
CBD office supply will grow much more rapidly after that, with more than 130,000sqm on the way.
Brookfield Place stage 2, Mirvac’s new tower at 28 Barrack Street and the four office buildings developed by Leighton Properties at Kings Square account for most of the increase.
Substantial new stock will come onto the West Perth market later this year but almost nothing after that.
The major new addition will be St Ives Group’s 1 Ord Street project, and two smaller developments at 1101 Hay Street and 1160 Hay Street.