28/03/2017 - 14:07

New tenancies won’t move vacancy needle

28/03/2017 - 14:07

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A recent flurry of leasing deals by oil and gas-related firms has provided hope that Perth’s CBD office market has hit the bottom, despite further downsizing expected in the energy sector throughout 2017.

New tenancies won’t move vacancy needle
Oil and gas activity is driving big changes in Perth’s office market. Photo: Attila Csaszar

A recent flurry of leasing deals by oil and gas-related firms has provided hope that Perth’s CBD office market has hit the bottom, despite further downsizing expected in the energy sector throughout 2017.

Much of the commentary around Perth’s office market heading into the New Year was that vacancy was stabilising at around 22 per cent, a result of a record supply cycle having come to an end.

Earlier this month, Japanese oil and gas giant Inpex led a cohort of energy-related companies signing new CBD leases, taking up 13,000 square metres at ISPT’s 100 St Georges Terrace in a deal brokered by Sheffield Property Group.

Sheffield also negotiated a lease of 7,000sqm for Quadrant Energy at 100 St Georges Terrace, while commercial landlord Hawaiian welcomed two new oil and gas-linked tenants to its London House in March – Cape Australia and Oil and Gas Solutions.

The two leases at 100 St Georges Terrace, along with Westpac’s commitment to take 6,000sqm at Brookfield Place Tower 2, were the largest deals on a square metre basis since Francis Burt Chambers inked a 6,037sqm renewal at Allendale Square in April last year.

However, while the new leases are an indication that the market may have hit the bottom, they have done little to change a bleak outlook for landlords of oil and gas-related firms, according to Y Research principal Damian Stone.

Mr Stone said the main driver of vacancy in 2017 would still likely be from energy-related companies downsizing, while around 40,000sqm of backfill space will come to market in early 2018, when Woodside Petroleum left Woodside Plaza for its new headquarters at Capital Square.

“The main driver of lower LNG demand in the city will be the completion of Gorgon and Wheatstone, and the wind-down in space requirements from Chevron and its project partners,” Mr Stone told Business News.

“These new leases are independent of those projects, and there is still a moderately strong pipeline of work out there, it’s just $55 billion is coming off the books here.”

Mr Stone said the largest levels of demand for space in the CBD office market had come from law firms in recent years, highlighting that Corrs Chambers Westgarth, Gilbert + Tobin and Holman Fenwick Willan all signed leases for significant amounts of space at Brookfield Place Tower 2 in recent months.

For the remainder of 2017, Mr Stone said he expected technology players to drive office leasing demand.

“If you look at the startup space, some of those will mature into occupiers in their own right out of the incubators and the shared workspaces,” he said.

“Technology is going to be an increasingly important driver similar to the east coast and the rest of the world.”

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