‘No vacancy’ sign up in CBD

Perth’s CBD office vacancy rate has plummeted to 5.8 per cent, effectively signalling a full office market, and with no major new supply under construction, the tight office environment is expected to continue for at least two more years.

The vacancy rate has fallen from 9.5 per cent to 5.8 per cent in the past six months, meaning the Perth market has absorbed almost 100,000 square metres of space in the past year – equal to two BankWest towers.

Unprecedented demand for office space has turned the Perth office market around in the last year, making it the best performing in the country, catching agents and tenants by surprise.

Property Council executive director Joe Lenzo said vacancies were the lowest on record, and the net absorption during the past year was the highest on record.

“The average net absorption is 15,000 square metres per year, and to have almost 100,000 go in a year is just staggering,” he told WA Business News.

“With the premium vacancy rate at 0.8 per cent, tenants looking for that kind of space just aren’t going to get it. “There is no pre-commitment for a new tower, so for the next two and a half to three years we expect tight vacancies.

“As a result, we are starting to see a rise in rental value, a drop in incentives to virtually nothing, and it is certainly the year of the landlord.”

The resources sector is attributed for much of the massive take-up in office space and, if considering take-up as a percentage of market size, Perth is almost double the rest of the country over the past year, at 7.6 per cent.

Colliers International director of agency Ian Campbell told WA Business News the CBD office market situation created a real risk for tenants.

“In the past tenants could set rents, space needs and cater for future growth,” he said. “That option is gone now, and a lot of tenants are at full capacity with no alternatives.

“The biggest problem tenants have is that they don’t leave enough time to look at their options, but they have to make up their minds about what they want to do further out than just three to six months before their tenancy expires.

“People are being asked to sign longer leases, and some people on month-to-month tenancies are being kicked out to cater for longer term tenants, and they have nowhere to go.”

Mr Campbell said that, with the next new development at least 30 months away, existing owners may consider refurbishing buildings, while increased suburban development also became a possibility.

“It could be the situation that in three years’ time tenants are paying higher rents for established buildings than for new buildings as market rents exceed the economic rent to build,” Mr Campbell said.

Colliers associate director of research consultancy David Cresp said the speed of change in the market had caught everyone out.

“The market was expected to turn, just not this suddenly,” he said.

“I think we’ll see a lot of peripheral market fire up in places like Leederville, Northbridge and Belmont.”

West Perth has an even tighter vacancy rate than the CBD. At 3.7 per cent, West Perth is the lowest in the country for non-CBD office locations.