12/08/2010 - 00:00

Office construction pipeline concerns

12/08/2010 - 00:00

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PERTH’S CBD office market could soon return to a state of extremely low or zero vacancy rates, as increasing demand from the resources sector combines with a lack of new office construction, the Property Council of Australia has warned.

Office construction pipeline concerns

PERTH’S CBD office market could soon return to a state of extremely low or zero vacancy rates, as increasing demand from the resources sector combines with a lack of new office construction, the Property Council of Australia has warned.

The Property Council released its latest analysis of the CBD office market last week, with the vacancy rate increasing to 9.9 per cent in July, driven primarily by a large amount of new office supply.

A total of 71,574 square metres of new space was added in the past six months, the highest since January 1992.

But Property Council WA executive director Joe Lenzo said office supply was drying up, and with no new construction on the horizon, demand would soon be outstripping supply.

“You could see yourself in 2013 and 2014 with an exceptionally tight Perth market,” Mr Lenzo told WA Business News.

“When you look at the current construction pipeline, which is completely empty for office buildings, if demand holds strong once these new buildings are out of the way you could conceive we would be in a situation like two years ago when there was no vacancy in the CBD,” he said.

Another key factor offsetting the increased supply of office space is that more than 70 per cent of the 175,054sqm of space still forecast to enter the Perth CBD market before 2012 is already pre-committed.

BHP Billiton has committed to 60,000sqm of the 71,000sqm in City Square; Bankwest has committed to the 42,500sqm available at Raine Square; Chevron is committed to the 13,178sqm available in Dynons Plaza; and the Insurance Commission of Australia will take up the 9,819sqm available in Westralia Plaza.

And despite the increased supply hitting the market, analysis by property research firm Savills shows a reduction in the availability of full floors across the premium and A-grade sectors.

“There are now limited opportunities for larger space users to secure contiguous tenancies within the CBD’s better quality buildings,” Savills WA divisional director of commercial leasing Graham Postma said.

Mr Lenzo said after City Square was complete, the only significant development applications were for Bishop’s See II, which developer Hawaiian has said it was not interested in pursuing, the Griffin Tower, which is caught up with administrators, and the old Treasury building, which Mirvac has been in negotiations with the government for two years already.

Mr Lenzo said the big issue for the Treasury building was that the proposed redevelopments did not stack up economically.

“The only way it stacks up economically would be if they could build a fairly major mixed-use tower, which would have residential on top and office at the bottom,” Mr Lenzo said.

According to Mr Lenzo, problems experienced by Mirvac, which has described the Treasury project as the most complicated in its 40-year history, highlighted the snail’s pace of the development approvals process, which had contributed to the formation of low vacancy cycles.

“To get a building approved, it takes a good four to five years, at least. If I decided ‘gee the market’s good, I can get my building up now’, it would take me four to five years to do it in the CBD, no question about it,” he said.

“The only other one, Colonial, has a development application where they would knock down 1 and 5 Mill Street, and put a 37,000sqm tower on the corner.

“But Colonial are very conservative in what they do; the government doesn’t move out until 2012, and then you’ve got to start thinking about it, and then any new development won’t be until sometime after 2015.”

 

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