Office lease activity up

Leasing transactions in central Perth office stock in 2019 have more than doubled the volume of activity in the prior year, driving vacancies below 5 per cent for premium buildings.

Savills Australia’s latest research shows new office leases covered more than 120,000 square metres of office space in Perth’s CBD in the 12 months to June 2019, up from around 50,000sqm in the previous corresponding year.

Tenants have indicated a clear preference for newly built or refurbished office stock, with premium-grade vacancy recorded at 4.5 per cent in December, and available options becoming scarce.

Savills expects incentives, where landlords provide rent-free periods or contribute to the cost of office fitouts, to trend downwards as a result, boosting the prospects of effective rental growth.

The agency said premium net face rents ranged between $630 and $725 per square metre per annum, while A-grade rents tended to fall between $525 and $650/sqm per year.

“Tenant appetite is increasing and we expect to see a continuation of this trend moving forward with incentives beginning to pull back,” Savills’ report said.

“Effective rental growth is already being seen in premium grade space, albeit at low levels.”

Savills said the majority of the activity occurred in lease sizes ranging between 1,000sqm and 5,000sqm, accounting for 49 per cent of total leasing volumes.

The mining, utilities and industry sectors led the rise in activity, accounting for 43 per cent of lease deals done, with Rio Tinto’s Hamersley Iron laying claim to one of the biggest transactions after it renewed its 6,784sqm lease at 95 William Street.

Government and community groups were the next most active sectors, accounting for 39 per cent of total leasing activity.

Major transactions included the departments of Human Services and Social Security taking up a collective 9,625sqm of space across 556 Wellington Street and at 45 St Georges Terrace.

On the sales side of the market, Savills said there were $526.3 million worth of office transactions in the year to June 2019, down from $836.2 million in the prior year and lower than the 10-year average of $647.1 million.

Major transactions included the sale of Exchange Tower to Singapore’s GIC for $309.4 million, and WorkZone West at 202 Pier Street having been bought by a Charter Hall-managed fund for $124 million.

ASX-listed Elanor Investors also contributed to the deal flow, acquiring The Sunday Times’ former office at 34-50 Stirling Street from NewsCorp for $24 million.

“Demand from both domestic and international capital is recognising Perth as a counter-cyclical play and an opportunity to take advantage of greater yields in comparison to the eastern seaboard,” Savills said.