Vacancies continue to fall in Perth’s CBD office market, pushing rents up for the first time since 2013.
Vacancies continue to fall in Perth’s CBD office market, pushing rents up for the first time since 2013.
Research from commercial agency CBRE showed vacancies in Perth had declined for two consecutive quarters, driving a 1.1 per cent rise in prime face rents in the three months to the end of June.
At the same time, CBRE said incentives had been trending downwards since the third quarter of 2018, highlighting the market’s return to positive territory.
CBRE head of research Bradley Speers said the drop in incentives, where landlords contribute to the cost of office fitouts or provide rent-free periods, had been a factor in net effective rental growth of 10.2 per cent in Perth over the past year.
Mr Speers said CBRE predicted earlier this year that Perth would lead the nation in rental growth.
“The scenario is indeed playing out and we expect the market will record net effective rental growth of around 15 per cent this year,” he said.
CBRE Perth head of office leasing, Andrew Denny, said demand was particularly strong at the premium end of the market, with tenants showing a clear preference for newer office stock.
Major leasing deals inked in 2019 include shared workspace providers WeWork and Spaces taking up large tenancies at Central Park and Raine Square, respectively, as well as Technip taking up 6,000 square metres of space at 1 William Street.
“Over the past 18 months, there has been a notable shift in sentiment, with a significant upturn in the number of both expanding and new tenants in the Perth CBD,” Mr Denny told Business News.
“Specifically, the premium and A-grade parts of the market are the standout performers, with face rents increasing across seven buildings – mainly A-grade – over the past eight months.”
Mr Denny said he expected overall vacancies to come in under 18 per cent when the Property Council of Australia released its office market analysis early next month.
A major contributing factor to the decreasing vacancy is a lack of new office supply, with the only substantial office project likely to be built in the next few years the 52,000sqm Chevron headquarters at Elizabeth Quay.
Mr Denny said he expected upwards momentum to continue, but cautioned any rental increases would be slow and steady, rather than a meteoric rise.
“The market is headed in a positive direction, albeit we are not anticipating large, quick changes,” he said.
“Although the latest figures reflect high effective rental growth changes over the next three years – the strongest nationally – the base was very low to start with.”
On the sales side of the market, data from Ray White Western Australia indicated similar improvements, with the total value of transactions in 2018-19 rising 13.9 per cent to $1.2 billion.
“With employment showing signs of rebound and population growth returning to WA, office market fundamentals are improving,” Ray White’s EOFY overview said.
“While there is still some way to go in the recovery of the Perth office market, many opportunistic investors, including private funds, will look to capitalise on competitive investment yields, particularly given the historically low interest rate environment.”
