PERTH’S office market is starting to tighten again for the first time since the middle of 2008 when the vacancy rates virtually hit zero at the height of the boom.
PERTH’S office market is starting to tighten again for the first time since the middle of 2008 when the vacancy rates virtually hit zero at the height of the boom.
In the six months to January, the CBD vacancy rate dropped to 9.5 per cent from 9.9 per cent, its peak in the current cycle. West Perth has shown a similar trend, falling to 5.2 per cent from 6.8 per cent six months earlier.
If it is a turning point in the cycle, it has come much sooner than the previous peak. CBD vacancies hit nearly 14 per cent in the middle of 2004, having spent most of the past four years at or above 10 per cent.
Those were good times for tenants. By 2006 things had turned completely and landlords had the upper hand, with vacancy rates at or below 1 per cent for nearly two years between 2007 and 2009.
Perth’s usual vacancy rate is between 7.5 per cent and 8.5 per cent, suggesting the market has not swung far from equilibrium before being hauled down again.
Property Council executive director Joe Lenzo said the downswing in supply would coincide with two major new buildings – the 44-storey City Square tower and the much-delayed Raine Square – which would soak up a significant amount of demand over the short to medium term.
But from 2013 onwards, there are no major new projects.
“By 2013 we could be down to full house,” Mr Lenzo warned. “There is nothing in the pipeline.”
With financial constraints on property development continuing, the shape of the property market will most likely be determined by demand from the resources sector, which is returning to levels of buoyancy seen before the global financial crisis.
CB Richard Ellis agent Andrew Denny said the Property Council figures showed a net absorption of more than 66,000 square metres for the six months, the second highest figure on record for the Perth CBD.
Mr Denny said the peak occurred in September and many of the deals struck in the past four months would not be fully reflected in the new data.
CB Richard Ellis is the leasing agent for City Square, which will be three-quarters taken up by BHP Billiton. There is just one floor remaining in that building.
Among the big deals struck in the past six months were: the state government has signed up for 13,000sqm of new space in association with the Old Treasury Building redevelopment; Chevron is taking 12,000sqm at 256 St Georges Terrace (including 6,000sqm previously occupied by contractors); Calibre Global took more than 6,000sqm at 50 St Georges Terrace; Rio Tinto took more than 3,600sqm in Central Park; Fortescue expanded to 6,000sqm at the Hyatt Centre, prompting URS to take 2,500sqm at 226 Adelaide Terrace.
Outside the CBD, the state government is also understood to have leased the whole of the 13,000sqm Optima Centre in Herdsman.
While nothing big is on the horizon, the city and its periphery are not devoid of development in the coming years.
The Charter Hall Opportunity Fund No.5 has won City of Perth approval to develop two eight-storey office towers on the northern fringe of the city near the Claisebrook railway station.
The commercial development site was bought for $31 million from Chinese interests.
The absorption of space in the CBD has taken place at the upper end of the market, with more than 6,000sqm of premium space and a net 81,581sqm of A-grade space taken up in the period.
By comparison B-grade and C-grade space faced negative net absorption for the period.
West Perth recorded a net absorption of 14,000sqm, dominated by more than 12,000sqm of B-grade space.
