Perth CBD office vacancy hits 25-year peak
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Downsizing in the resources sector is outstripping emerging demand from technology, medical and education businesses for CBD office space according to a new report by independent property research firm Y Research.
The Perth CBD Office Market Census - February 2017 found Perth’s CBD office vacancy has climbed to 25.2 per cent, its highest peak in 25 years, identifying the occupancy and vacancy of each of the 280 office buildings across the CBD.
The report found that the amount of vacant office space in the Perth CBD increased by over 15 per cent in the last 12 months to over 450,000 square metres.
The last time the vacancy rate was at 25 per cent was in the early 1990s.
“As both the office development and resources construction boom come to a close, it is a challenging time for the Western Australian economy and these challenges are reflected in the Perth CBD office market,” Y Research principal Damian Stone said.
“Since 2008, nearly $800 billion dollars has been invested in resources projects in WA, based out of head offices and project space across the CBD.
This demand drove CBD office vacancies to the lowest levels across the world and kept them below comparative cities post the GFC.”
Mr Stone said since 2012, resources firms and their supply chain have had to focus on survival, and that fight has been reflected in the office occupation of iron ore companies in the CBD.
“In 2012, there were 45 iron ore tenancies in the Perth CBD; in 2017 there are only 18,” he said.
“Businesses operating in WA in 2017 have dramatically lowered their cost base to remain competitive with major global players.
Now, as projects such as Gorgon are completed or approach completion in 2017, resources companies and their project partners continue to unwind their office space requirements (head office and project space).
“Suppliers to the resources sector have made significant staffing cuts as have most businesses as they adjust to lower growth post the resources boom.
“Downsizing or closure of office tenancies, combined with a decade of new supply additions in the CBD, has pushed the vacancy level to its highest point in a quarter of a century.”
Mr Stone also said the ongoing shift from the resources boom to a more “historically normal Perth market” was a significant adjustment for property owners and tenants.
“In the past 12 months, the CBD has lost over 4,000 office workers. Since the peak of the resources boom in 2012, there are nearly 15,000 fewer office workers in the Perth CBD despite the addition of over 200,000sqm of new office stock,” he said.
“Perth is first and foremost a resources city. The boom and bust nature of the resources cycle is part of the DNA of our state.
“Global commodity prices and the investment plans of resources companies shape the performance of the Perth CBD office market.
“How Perth can limit the negative impacts of the cyclical lows of the commodity price cycle is to diversify our economy, our employment base and, therefore, tenant mix across office stock.
Economic diversity and a broader tenant mix will improve the resilience of our city in the future.”