New boom through office market

THE CBD office leasing market is in a far healthier position than it was heading into the last boom, according to the latest market research from Colliers International.

Colliers International director of office leasing, David Cresp, said the outlook for the Perth office market was positive, with an expected resurgence in demand for office space to be covered by supply coming online in the next two to three years.

The Colliers research correlates with a report released last month by market analysts CB Richard Ellis, which forecast the market to experience a gradual recovery that would accelerate in 2010 as new resources projects commence.

CBRE senior director of office services, Andrew Denny, reported tenant enquiry had improved significantly on the levels recorded in the October quarter, with a growing number of tenants looking to expand or relocate to larger offices.

Tenants seeking high-quality office space would create the opportunity for new developments of around 20,000 square metres to enter the market, according to Mr Cresp, who said the majority of new office space scheduled to come online in the next two years had already been taken up by new tenants.

“It will be the quality buildings that fill up first, and there will need to be large tranches of high-quality space for tenants to go as demand increases. That will bring new development, so new buildings will follow, particularly if rents are competitive,” Mr Cresp told WA Business News.

“We’re certainly not forecasting another large supply round, but we do think there are pockets of opportunity and that demand will be led by larger tenants looking for those high-quality buildings.

“We’ve got buildings that have development approvals and they are ready to go, which means that if Perth does take off like many are now forecasting, we’re not going to be trapped in that cycle where we were last time, that we see the vacancy rate drop so suddenly without any plans being ready for new buildings.

“Last time it took five years. This time it could take two to three years when we could start seeing new supply, so we are far better positioned this time around than we were last time, and we’re not going to see that unhealthy market of the vacancy rates getting down to zero per cent again.”

Mr Cresp said the return to historically average vacancy rates, forecast to peak between 10 and 15 per cent in 2011, would underpin a stronger and more sustainable leasing market.

“This time around the market is more likely to see a vacancy rate of around 10 per cent, which is actually a positive for business because there are options when they want to expand or relocate,” he said.

“When you consider the fact that the average vacancy rate for Perth over the past 15 years is 11.1 per cent, and nationally it’s 9.5 per cent, it becomes clear just how far from normal those recent rates of less than 1 per cent were.

“Normally when the vacancy rate dives below 10 per cent, you start to see supply come on.

‘‘During this last boom, it didn’t happen because Perth wasn’t in a position for it.

“Rents were unsustainably low for so long that developers didn’t even think about new supply.

“When they did try to get it off the ground they needed rents in the order of $450 per square metre to make it stack up, but market rates at the time were around $300/sqm.”

CBD premium rents are currently around $750/sqm, and Mr Cresp said this, coupled with lower construction costs, made it possible for developers to provide new space at a lower cost than existing premium building offers.