OFFICE leasing is the CBD has become increasingly competitive as growing firms absorb record levels of office space, and owners of older buildings mobilise plans to reposition their stock to compete with a raft of new offerings to the market.
OFFICE leasing is the CBD has become increasingly competitive as growing firms absorb record levels of office space, and owners of older buildings mobilise plans to reposition their stock to compete with a raft of new offerings to the market.
Research from analysts Jones Lang La Salle indicates about 93,000 square metres of office space has been absorbed by expanding firms during the past 12 months, with the majority of activity coming in the second half of the year.
Two of the biggest leasing deals were announced last month, with global oil and gas giant Chevron taking up 12,300sqm at 256 St Georges Terrace, and engineering firm Calibre Global taking 7,000sqm at 50 St Georges Terrace.
In the past 12 months, Chevron has increased its CBD footprint by 31,500sqm.
In other major deals, Barrick Gold agreed to lease 4,500sqm from Bankwest at Raine Square, once it is complete, while accounting firm PwC is expected to announce an 8,000sqm leasing deal in coming weeks.
Fortescue Metals recently doubled its take-up at the Hyatt Centre to 7,745sqm, while Rio Tinto has taken up an additional 3,600sqm in Central Park.
Also, global risk solutions outfit AON has agreed to take up 1,836sqm in the BGC Centre vacated by accounting firm PKF, in a deal brokered by LPC Property Solve.
It is understood that Chevron will take the 2,400sqm vacated by AON at QV1.
“It’s very difficult at the moment, to find contiguous office floors above 1,000sqm, Jones Lang La Salle WA managing director John Williams said.
“If you are looking for a 2,000sqm to 4,000sqm chunk of space you’re going to have very little choice,”
The end result of the increased competition for space will firstly be the removal of incentives from the market, and ultimately upwards pressure on rents.
“Our projections are that the rents have bottomed out, so 2010 has seen the bottom of the rents cycle,” Mr Williams told WA Business News.
“In 2011, as the demand continues, we forecast firstly incentives going down, then we’re going to see some rental increases.”
The delivery of new space also has the potential to change the dynamic of the office market, Mr Williams said.
According to Jones Lang LaSalle research, 84,544sqm of new space came to market over the past 12 months, with a further 128,900sqm currently under construction across four projects.
Projects under construction have a 95 per cent pre-commitment, with the remaining 12,000sqm at City Square being leased during the September quarter.
Jones Lang La Salle estimates the vacancy rate in the western end of the CBD has fallen to 3.1 per cent, well below the 7.9 per cent recorded for the CBD as a whole.
Colliers International office leasing director Neil Kidd said as the western side of the CBD tightened up, tenants would begin spilling over into the eastern sector, which had a predominance of older stock.
“That’s when those buildings are going to need to be offering something different to differentiate themselves, and I think that’s where we’re going to see some of this refurbishment occur,” Mr Kidd said.
The requirement for refurbishment has been underlined by the Brookfield Multiplex-built City Square in particular, with its large floorplates and energy efficiency initiatives suitable to be customised for a large range of tenants’ needs.
One of the most extensive refurbishment projects is currently under way at Bankwest Tower, where entire floors are being stripped back to bare concrete when leases expire to allow comprehensive renovations.
“It certainly sets a new standard in the CBD,” Mr Kidd said.
“It’s a complete strip-out right back to bare shell, it’s a complete re-wiring for the lighting, it’s a complete makeover of toilet facilities on each floor, and it’s a hybrid air-conditioning system, where its employing state-of-the-art chilled-beam technology on the perimeter.
“Those are the sorts of things that a tenant is now expecting.
“Will the other buildings need to go to that extent? Possibly not, but they will need to do something over time to maintain building value and competitiveness in the market.”
