Demand, space driving rates

Perth CBD office rents may have eclipsed those of West Perth last year, but the fringe market is making up for lost ground with 300 square metres of refurbished B-grade space leased for a record $475/sq m this week.

The deal, negotiated by Colliers International with an undisclosed tenant, indicates the extent of underlying demand for office space in the West Perth market.

Until recently, B-grade space was leasing for between $300/sq m and $375/sq m, and A-grade space for between $410/sq m and $475/sq m.

In response, the price of West Perth’s A-grade office space is tipped to increase significantly in the new year.

WA Business News understands that a two-storey A-grade office building at 38 Ord Street, under management by Multiplex, may fetch close to $550/sq m on rent review this year.

And a new office complex at 56 Ord Street developed by TRG Properties is set to achieve more than $500/sq m for a sub-leased floor when completed shortly.

Colliers recently completed a 350sq m leasing deal at 56 Ord Street for $450/sq m.

CBD office rents by comparison, are believed to be currently sitting at between $500 and $560/sq m for A-grade buildings, and $450/sq m to $490/sq m for B-grade buildings.

Colliers executive of investment sales, Terry Hutchings, said West Perth A-grade rents had been artificially capped in previous years because they were at a premium to those located in the CBD.

“Ironically, now that CBD rents have once again overtaken those in West Perth, marking a return to more normal market conditions, the West Perth market has been able to demonstrate significant rental growth,” Mr Hutchings said in a statement.

The rapid increase in rents in West Perth was further exacerbated by a record low vacancy rate of 0.4 per and the lack of space becoming available in the coming months, he said.

Savills director of commercial leasing Graham Postma said the strength of the West Perth office market had got to the point where a number of leasing deals were being brokered off-market through word of mouth.

Mr Postma believed the gap between CBD office rents and those of West Perth would remain, but the line between the rents charged for B-grade and A-grade space in West Perth would continue to blur as demand escalated.

“There will always be a difference there between the CBD and West Perth. Certainly some tenants prefer to be in West Perth, so I’ll be surprised if West Perth does not achieve over $500/sq m this year for A-grade,” he told WA Business News.

While property analysts forecast CBD vacancy rates to ease when new supply hits the market from late 2008, the West Perth market is expected to remain tight, with limited development opportunities available.

Mr Hutchings said because of their rarity, development sites coming to market were now starting to achieve over $5,000/sq m.