PERTH'S office vacancy is expected to peak at around 15 per cent over the next two years before major resources projects rekindle demand, according to CBD office leasing agents. A Property Council of Australia report released last week found that 70,000 square metres of new office space and falling demand had driven the Perth CBD vacancy rate from 1.3 per cent in January to 8 per cent in July. The new premises added 5.5 per cent to the total CBD office stock and contributed to the second highest increase in vacancy rates in the history of the council's office market report. Current projects under construction are forecast to add a further 249,745sqm of space to CBD stock, with 75 per cent of this supply pre-committed. Leasing agents told WA Business News they expected the vacancy rate to increase over the next two years, to a peak of around 15 per cent, at which point demand from major projects such as Chevron's Gorgon natural gas development should slow the rise. As a result of the sliding short-term demand and rising supply, Colliers International manager of research and consultancy, Erwin Edlinger, said he expected city rents to soften. "I think Chevron's the big one, that's just got conditional approval, but there's going to be a short-term lag between now and when those projects come on line, so it's going to be soft until they become a reality," Mr Edlinger said. "It will probably mean that rent stabilises, over the next 24 months, rather than continue to contract, but the levels we were at before were unsustainable, so it's probably coming back to a realistic and economically viable rental atmosphere." Burgess Rawson leasing manager Clive Norman said the figures indicated the Perth office market was entering a period of consolidation. "There don't appear to be major tenants in the market at the moment but I think that's going to increase again probably towards the early to middle part of next year," Mr Norman said. "Even though a high percentage of it is pre-committed, I cannot see any further development plans being commenced in the near future. "I think we're just in for a period where there's going to be availability, it's going to have a flow-on effect to rents where the higher grades will level off and the lower grades will drop away more dramatically." He said the sharp increase in CBD vacancies during the past six months was not a cause for concern. "These are the sort of figures that we're more used to. In the short term we got very used to very low vacancy rates, which of course were unsustainable," Mr Norman said. "Industry sentiment was that it was quite encouraging that it hadn't gone higher." In Perth's other main commercial property market, West Perth, vacancies jumped from 1.9 per cent to 6.1 per cent over the same six-month period. Property Council of Australia WA chief executive Joe Lenzo said economic conditions had led a number of West Perth tenants to move to fringe office areas such as Subiaco, Herdsman, Belmont and North Perth. Knight Frank national director of office leasing Greg McAlpine said West Perth had experienced some decentralisation due to increased rents over the past two years. "We saw a decentralisation with some of those tenancies when the rent spiked, so that's what caused the latest round of developments, particularly in Subiaco, he said. "But now rents are falling so there's less likelihood of seeing decentralisation."
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