Local confidence driving office demand

INCREASED confidence in the local economy has led to a spike in tenant demand for office space, new research says.

CB Richard Ellis’ latest Perth Office Market View report shows the office vacancy rate in the CBD was likely to fall to about 6.5 per cent in July, as tenant demand accounts for new supply as well as backfill space.

The report says business services accounted for the vast majority of take-up, with resources companies taking the second largest amount of space.

CB Richard Ellis says further strong absorption is expected for the six months to July 2011, after the near-record absorption of 66,670 square metres of space in the year to January.

The five-year average net absorption was just 18,262sqm, and the 10-year average was 17,585sqm.

“That said, as new supply comes online in late 2011 and through 2012, some pressure will be seen on the vacancy rate, particularly for older, lower grade buildings,” the report says.

“This big unknown at this point in time is whether the increasing tenant demand will be strong enough to take up much of the backfill space which will become available.”

As a result of the decreasing vacancy, the report says, rental levels have continued to rise, particularly for premium and A-grade stock.

CB Richard Ellis predicted an annual rental growth rate of 4.2 per cent in the coming five-year outlook, well above national averages.

Meanwhile, CB Richard Ellis’ report showed the West Perth office market is returning to low vacancies faster than the CBD, thanks to wide-ranging tenant demand from small to medium resources firms.

As of January 2011, the West Perth vacancy rate was as low as 5.2 per cent, and researchers predicted it to fall to around 4 per cent by mid-2011.

CB Richard Ellis associate director of office services Luke Bray said rental levels were forecast to increase over the next 12 months, with $575 per square metre already achieved this year.

“As at March 2011, the indicative net face rent for West Perth was recorded as $500 a square metre, indicating the rental correction phase has truly come to an end,” Mr Bray said.

“Rental levels are expected to continue increasing for the remainder of 2011 as the amount of available lease space remains limited and there is no new development scheduled for completion during the year.”

Mr Bray said there were very few large areas of space currently available in West Perth, and the only tenancy over 1,000sqm was the 1,440sqm available at 2 Kings Park Road.