02/08/2018 - 06:15

Perth office vacancies continue to fall

02/08/2018 - 06:15

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The worst may be over for Perth’s office market, with the latest statistics pointing to another fall in vacancies, dropping slightly from 19.8 per cent to 19.4 per cent in the six months to July, according to the Property Council of Australia’s mid-year office market report released today.

Perth office vacancies continue to fall
In January Perth’s CBD office vacancy rate fell below 20 per cent for the first time in two years. Photo: Gabriel Oliveira

The worst may be over for Perth’s office market, with the latest statistics pointing to another fall in vacancies, dropping slightly from 19.8 per cent to 19.4 per cent in the six months to July, according to the Property Council of Australia’s mid-year office market report released today.

Perth still had the highest vacancy rate of any Australian capital city, well above the national average of 9.1 per cent,

Despite this, Property Council WA acting executive director Emma Thunder said the results reconfirmed that Perth vacancy rates had passed their peak, with both the CBD and West Perth markets reporting reduced vacancies, which she said was driven by an increase in demand for CBD space.

“There is a continued flight to quality, with demand remaining strong in prime stock. The main concern is around the secondary stock and how this market can be assisted,” Ms Thunder said.

“Perth’s secondary stock market has some of the highest vacancy rates in the country. The challenge now is to find innovative solutions to attract people back into these buildings.

“We are at a significant time in the office market cycle where we have a unique opportunity to encourage owners, occupiers and the government to come up with solutions and new business models that would help drive the activation of these buildings.”

JLL WA head of office leasing Nick Van Helden said the Perth CBD office market had experienced seven consecutive quarters of positive net absorption.

“A reduction in sublease space and positive signs of organic growth from the resources sector, along with a trend of companies centralising from the fringe or suburban markets, have combined to fuel enquiry levels and demand, with a number of large transactions currently being negotiated in the CBD,” Mr Van Helden said.

“Large consecutive prime CBD grade floor options are becoming limited, with larger tenants motivated to progress their real estate requirements now rather than waiting as the market continues to improve.

“Limited confirmed future Prime supply additions and a lack of strategically located CBD commercial development sites is also factoring into the long-term planning of larger CBD tenants.”

CBRE WA senior director Andrew Denny said sub-lease activity was currently 21,860 square metres throughout the Perth CBD - lower than mid-2012, during what he said were considered boom market conditions.

“The likelihood is that we will see both face rent increases and a reduction in incentive levels in 2019,” he said.

“The Perth CBD leasing market continues to show signs of recovery, led by several significant enquiries for space above 4,000sqm, with the state government and resources sector at the forefront.

“Other organisations seeking space include WA Police for 18,000sqm, the Department of Public Prosecutors for 4,000sqm, and Rio Tinto for between 4,000sqm and 10,000sqm. It is several years since the market has seen such a concentration of new large space requirements.

“These tenants are the biggest occupiers of the Perth CBD, with mining and engineering occupying nearly 16 per cent of the CBD, and the signs point to the leasing market recovering at a far greater pace than previously forecast.”

Colliers International director of office leasing, Daniel Taylor, said businesses were continuing to take advantage of the favourable leasing terms and most tenants he had dealt with were gearing up for growth by leasing surplus space to accommodate requirements for the next five years, and in some cases 10 years.

“Sentiment in the office market is improving and business confidence appears to be stronger than it has been for the past five years," Mr Taylor said.

“Inquiry levels are increasing, office rents and incentives are stabilising, and at several buildings we have seen incentives pull back slightly. Tenants are also displaying a strong preference for offices with fitouts in place.”

Despite the opening of Capital Square, a new 54,000sqm CBD tower headquartered by Woodside, Mr Taylor said he was still anticipating a modest decline in office vacancies over the next year.

He said half of Woodside’s 40,000sqm tenancy left behind at 240 St Georges Terrace has already been leased, and he expected the remaining backfill to offset some of the recent absorption, leaving the city’s vacancy only slightly lower in 2019.

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