Effects of boom still lingering in CBD

TWO years ago, Perth’s skyline was littered with cranes and the city was in the midst of a commercial office construction boom.

Today, while there are still a few major construction sites in the CBD, most of the cranes have been packed up, as construction activity has waned significantly since the height of the boom.

The lingering effects of the upturn in construction activity are still evident at Brookfield Multiplex’ $730 million 47-storey office tower City Square, at which BHP Billiton will be the anchor tenant, but elsewhere in the city, major projects are thin on the ground.

Over the past two years, a wide range of high-rise tower developments were completed in the Perth business district, including Broad Construction’s $111 million Alluvion office development on Mounts Bay Road and the $28 million Elder Street car park, Brookfield Multiplex and Industry Superannuation Property Trust’s $400 million enex100, and upmarket shopping precinct Wesley Quarter.

A further 241,700 square metres of office space is forecast to enter the CBD in the next two years, and although 71.5 per cent has been pre-committed, the remaining floorspace should soak up any residual demand, stymieing any chance for the development of new office projects.

Current major construction projects in the CBD include City Square, Probuild’s $260 million one40william office and retail project, Saracen Properties’ $300 million Raine Square office block and apartment and mixed-use tower Equus, at the former Cinema City site in Hay Street.

Those developments could be the last for some time, however, with forecasts indicating the CBD office vacancy rate likely to rise into double digits over the next 12 months.

The current vacancy rate sits at 8.2 per cent, according to the Property Council of Australia’s latest office markets report.

Outside the CBD in East Perth, the City of Perth’s push to increase population in the city is providing a timely boost to the high-rise apartment development market.

Probuild state manager Eric Meyerowitz said the City of Perth’s initiatives had increased the market’s appetite for high-density, multi-storey apartment developments.

“We don’t touch housing, but we do high-rise residential and there is definitely an increased demand there,” Mr Meyerowitz said.

“We are seeing numerous projects that were shelved previously back on the drawing board, and a lot of our enquiries are centred around a residential field. The issue that comes in a tightening market is whether you can deliver them at a cost point clients need them to be delivered at.”

Diploma Group managing director Nick Di Latte said demand for apartments had led the firm to recently undertake a $15 million capital raising to acquire apartment development sites.

Diploma also recently announced it had bought an apartment development site at 708 Foundry Road, in Midland.

Diploma plans to build 43 apartments over three levels at the site.

“Our core business on our property side is in medium to high-density residential apartments, and we see significant demand for that product moving forward as well, and we’re very good at it, so we certainly wouldn’t be moving away from that,” Mr Di Latte said.

Meanwhile, Perth’s largest apartment developer, Finbar, this month announced plans to build a 23-storey tower and a 21-level apartment building at the old ABC Studios site on Adelaide Terrace.

Construction firms are anticipating major public sector projects the Northbridge Link and the Foreshore Revitalisation to drive demand for CBD construction in the medium term.

In May, the state government began the tender process for the Link, with work scheduled to commence on sinking the railway line as early as February next year.

“We see them as an excellent thing, it’s a good revitalisation of Perth, and they will drive demand, they will be excellent locations for people to live, they are close to the CBD, so they are an excellent prospect to make a feasible development work,” Pindan business development manager Scott Davison said.

“You’ll achieve the sales and at the right spots you’ll get some excellent sales rates.”

Brookfield Multiplex director of construction and development, Chris Palandri, said the Link and Foreshore would generate a great deal of business, but would not concede they were a panacea for the downturn in CBD construction activity.

“Both of those projects offer opportunities to the market, but whether the market can deal with the timeframe it would take to absorb the opportunities that are present is yet to be seen,” he said.

“The government just creating the space doesn’t necessarily drive the commercial property market to going and developing buildings, the market fundamentals need to be there, the tenants, the pre-commitment, the pre-sales and the pre-leases.

“You need to have the demand there to get the projects moving in the first place. They are longer-term projects.”