Older stock to feel the pinch

A GLUT of new commercial developments to come on line in Perth’s CBD this year will result in backfill vacancies in older stock, according to a leading office leasing agent.

Property Council of Australia statistics forecast 241,700 square metres of new office space will enter the CBD by 2012 during the current construction cycle.

Major projects slated for completion this year include: 42,500sqm at Saracen Properties’ Raine Square; 36,000sqm at CBus Properties’ one40william; and 22,417sqm at Cape Bouvard’s Alluvion on Mounts Bay Road.

Savills divisional director of commercial leasing, Graham Postma, told WA Business News about 80 per cent of new office stock coming to market in 2010 was already pre-committed, resulting in increasing vacancies in older buildings as tenants make the flight-to-quality.

Mr Postma said owners of older office buildings would have to make some tough decisions over the coming year to remain competitive in the market.

“If (the tenancy) is in one of the lower quality buildings then it’s likely that it will struggle and it will become a price point issue, but I think they are the buildings that have to look at their overall position in the market,” he said.

“If they’ve got a significant vacancy coming up, they’ve got to potentially look at undertaking some refurbishment works to the building to reposition it.”

Refurbishments occurring at St Martins on St Georges Terrace were a good example of repositioning an asset for a changing market, Mr Postma said

The current vacancy rate of 8.2 per cent, which has been forecast by Savills to peak around 12 per cent by the end of 2010, has given tenants the option to relocate operations.

“Particularly when we come out of a market with zero vacancies, tenants haven’t had a choice of what sort of space they could occupy, ” Mr Postma said.

“Now tenants can look at ... the best quality space that they can afford at that particular time.”