City space still tight

Not so long ago it seemed that Perth was a tenants’ market, with property owners shopping for companies to anchor their new buildings.

But those days are a distant memory, with the office vacancy rate in the CBD plummeting to just 0.15 per cent in March this year,  according to data released by Jones Lang LaSalle this week.

And despite a new wave of projects due to commence, supply is nowhere near meeting demand.

One player to have been partially forced out of the CBD is oil and gas giant Chevron, which will move part of its Gorgon project team from QV1 to West Perth, having signed on to a new 3,900 square metre office building at 26 Thomas Street.

The project is due to be completed in May and Chevron has begun a fit-out of its new premises, expected to cost about $4.5 million. 

It’s a drop in the ocean for Chevron, however, given the company was rumoured to be looking for 20,000sqm of space.

But the options for tenants wishing to stay in the CBD are dwindling, with most major projects having already signed anchor tenants, and the leftover space filling up quickly.

The office component of Century City, anchored by National Australia Bank’s 8,900sqm lease, is believed to be nearly full, with the remaining 45 per cent of the project close to being leased.

WA Business News understands that both West Perth-based Apache Energy and the National Offshore Petroleum Safety Authority have expressed interest in the site, although neither has signed a contract yet.

Apache is believed to be in the market for about 7,000sqm.

Meanwhile, financial services player Plan B has confirmed it is in negotiations to lease 2,460sqm at Century City, although it is debating whether to remain in Central Park.

The company is expected to make a decision soon, given it is required to renew its current lease by October.

The same issue is being grappled with in boardrooms across Perth – whether to lock in a pre-commitment and risk a drop in rents, or renew at a time when the market rate for premium and A-grade stock is sitting at $820/sqm before outgoings.

For those that pre-committed to the first wave of developments – such as BankWest (Raine Square), and KPMG and Macquarie Bank (Bishops See stage one) – the decision has proved prescient.

“At the time, we thought they were paying a lot, but now the rates look wonderfully cheap from [the tenants’] perspective. The pre-commitment market is attracting a discount,” Jones Lang LaSalle WA joint managing director, Steve Carulli, said.

“It will be interesting to see what happens now as tenants try to dismantle the leases they’re in. Everything has been ratcheted up – tenants can’t go backwards, and the [renewals] are being done for longer than tenants want.”

Mr Carulli said many tenants were being forced to sign on for five- and seven-year terms, rather than a preferred three-year period.

With a second generation of projects under way in the city, buildings such as Saville’s planned 60,000sqm office tower on Capital Square and Finbar’s office tower on the Fairlanes bowling site are expected to provide some relief to tenants.

However, pre-commitment rates are expected to catch up to market rents, according to Colliers International (WA) office leasing director, Ian Campbell.

“There’s still an opportunity for new developments to be significantly cheaper than existing rents, but I think that gap is going to close over the next 18 months,” Mr Campbell said.