Office vacancies continue downward trend

Perth’s office vacancy rate has fallen to its lowest level since 2015, with increasing momentum in commercial leasing reflecting brighter sentiment across Western Australia’s business sector.

The Property Council of Australia’s latest office market report showed Perth’s CBD office vacancy rate fell to 18.5 per cent in the six months to the end of January, from 19.4 per cent at the end of July last year.

More than 6,700 square metres of office space was taken up by new tenants over the past six months, while total absorption for 2018 was 15,333sqm, the Property Council said.

However, nearly 65,000sqm of space was withdrawn from the market as building owners undertook refurbishments and re-fits, including space at 240 St Georges Terrace, Central Park, 125 St Georges Terrace, and 150 St Georges Terrace.

Property Council WA executive director Sandra Brewer said the results were encouraging for Perth’s commercial property sector.

“There’s no question the broader Perth office market has experienced a difficult few years, but we are now seeing a steady decline in the vacancy rate and we’re moving into a market where new supply will be limited and economic indicators are positive,” she said.

“At the same time, our market has diversified – rather than pinning leasing activity and activations to any one sector, building owners are actively exploring new uses and tenants for their assets.

“The CBD is now home to student accommodation, cinemas, and major new retail, office and lifestyle hubs, and that increased vibrancy and activity is good news for our city and for our office market going forward.”

The Property Council said vacancies were particularly tight at the premium end of the market, with just 4.5 per cent of the city’s best office stock available for lease.

A-grade vacancies came in at 16.3 per cent, while more than 30 per cent B-grade office stock in Perth CBD is empty.

Savills head of office leasing Graham Postma said tenants with expiring leases were seeking higher-quality office space, while the flow from the suburbs to the city continued in 2018.

“This is clearly evidenced by the divergence in direction of the premium and A-grade vacancy, both of which are declining, compared to Sydney levels in the case of premium stock, while lower-grade stock continues to increase,” he said.

“The best example of this was 240 St Georges Terrace, starting the year with an impending 22,870sqm in vacancy once Woodside relocated to its new HQ – half of which Dexus has since leased – and finishing the year with commitments of more than 70 per cent and strong demand for the remaining space.

“Primewest is said to have secured Technip, which has 400 people in its Perth office, for 6000sqm, the Department of State Development for 3,500-4,000sqm, and another tenant for closer to 500sqm.”

JLL head of research Ronak Bhimjiani said Perth’s office market had been boosted by a surge in labour market

conditions during the past 12 months, with all-time high levels of employment recorded in October.

“As a result, net absorption in the Perth CBD totalled 50,800sqm in 2018 - its highest levels since 2011,” Mr Bhimjiani told Business News.

“Looking at forward indicators, it’s clear that the resources industry has stepped up in terms of capital investment.

“JLL WA Research estimates there are more than $100 billion of projects currently proposed or approved.

“Should these projects eventuate, it wouldn’t be surprising to see additional office space being taken up in the market, resulting in even higher net absorption in 2019.”

Colliers International director of office leasing Daniel Taylor said he expected conditions in 2019 to continue to favour tenants.

“Fitouts offering tenants the convenience of a ready-to-go work space are playing a major role in the competition to secure tenants,” he said.

“With close to 13,000sqm of speculative fitted out office space in the CBD market, innovative ideas are required to stand out from the pack.

“Prospective tenants may see 10 offices in a day, so the one that has a point of difference will be the standout.”