Office rents should plateau – report

Perth's office market is expected to remain tight in terms of vacancy rates, although rental growth is likely to ease during the year, according to a March quarter report from CB Richard Ellis.

According to the agency's figures, 403,266 square metres of new stock will be constructed in the CBD over the next five years, 67 per cent of which is already pre-committed.

While the vacancy rate is expected to sit below 4.5 per cent over the next three years as this stock is completed, it is expected to peak at 11.2 per cent in January 2013.

Most of the increase is likely to occur from January 2010 onwards, as tenants move to new locations and backfill space arises.

Much of the new space in the suburban market is also expected to be completed during this period.

Rental growth in the CBD, which reached an average of 55 per cent in 2007, is expected to slow in the latter half of 2008, given some resistance has emerged at the $700/sqm mark.

Indicative net prime grade rents reached that figure in January, with a high of $850/sqm posted by the end of the quarter.

The growth rate is likely to range between 12 per cent and 15 per cent, while a further downturn is expected in 2009. Although there are no leasing incentives in the current market, they are expected to be reintroduced from 2011 onwards.

Rents are also expected to drop back in 2011 and 2012, particularly for B-grade stock.

In West Perth, top rents have reached $550/sqm, up from $500/sqm in January.

While the rate of rental growth has slowed, due to a combination of higher interest rates and global financial instability, it is expected to remain stronger in West Perth than in the CBD market.

The growth rate is likely to range from 12.8 per cent for secondary buildings to 20 per cent for prime space.

All of the new buildings being constructed this year and next have been pre-committed, which will keep the suburb's vacancy rate below the 5 per cent mark in the short term.

While West Perth set a record low for office vacancies earlier this year, the total vacancy rate is likely to sit between 1.3 per cent and 4.1 per cent until 2013.

Given the flow-on effect from demand in the city and West Perth, the vacancy rate in the suburbs is also very low.

Rents have grown, with indicative net prime rents between $330/sqm and $475/sqm in Subiaco.

Stock in Leederville, Osborne Park and Herdsman is sitting at between $330/sqm and $400/sqm, while Belmont has achieved prime net face rents of up to $400/sqm.

In total, CBRE says about 400,000sqm of new office stock is due to come on line in the suburban market between 2009 and 2013, if all the proposed projects go ahead.