The Perth and West Perth office markets has experienced the largest percentage increase in the vacancy rate in nearly 20 years, with a new report highlighting the impact of the global financial crisis on the local property sector.
The Perth and West Perth office markets has experienced the largest percentage increase in the vacancy rate in nearly 20 years, with a new report highlighting the impact of the global financial crisis on the local property sector.
In its Office Market Report released today, the Property Council said the Perth CBD vacancy rate has increased form an unsustainable 1.3 per cent, or 16,567 square metres, in January 2009 to a "reasonably healthy" 8 per cent, or 109,170sqm, in the six months to July.
Over the past six months, 70,588sqm of new office stock has been added to the Perth CBD market, making it the second highest amount in the history of the report.
Despite the large percentage increase, the current vacancy rate of 8 per cent was below the 15-year historical vacancy rate of 10.5 per cent, the report said.
"In the past six months, Perth has fully felt the impact of the economic slowdown," Property Council WA executive director Joe Lenzo said.
"The mining companies that underpin the Perth market have been actively sub-leasing excess project space.
"Rio Tinto alone has relinquished more than 25,000sqm of office space in the past six months.
"The downturn in commodity prices, delays in projects such as Gorgon and Pluto 2, and project finance constraints, has seen the likes of Woodside, Worley Parsons and SKM significantly downsize their space requirements.
"Negative demand has placed downward pressure on rents and seen the return of leasing incentives."
Mr Lenzo added that new development had created moderate back fill vacancy but the former premises of Macquarie Bank at Allendale Square and KPMG at Central Park have not been absorbed by existing tenants as previously forecast.
However, on the upside, Mr Lenzo said that with reduced rents, full floor vacancies and a pick up in business confidence have seen the number of leasing enquiries increase in the past two months.
"While the typical enquiry has been from small professional services firms seeking space under 500 sq m, we expect large space users to return to the market in the coming 6 months as new/delayed mining and infrastructure projects commence," he said.
"This trend is already shown by BHP Billiton's recent 6,000 sq m commitment to lease 1 Mill Street vacated by Rio Tinto. On this basis, while we expect a continued rise in the vacancy rate as further supply is added, future rises will be below the increase experienced in the last 6 months."
It's a sentiment echoed by CB Richard Ellis senior director office services Andrew Denny.
"We now expect conditions to be more stable as the flow of new sub lease space entering the market has stopped or been reduced to a very low level in the last 6 weeks," he said.
"Prior to this, new sub lease space entered the market every week."
Looking ahead, a further 249,745sqm of office space is forecast to enter the CBD in the current construction cycle. Of this, 75 per cent is already pre-committed.
On completion of current projects, Perth's office market will increase by 18 per cent.
New projects currently being completed include Brookefield Multiplex's City Square, Saracen Properties Raine Square, Cbus' 140 William Street and Stamford Group's Dynons Plaza.
Meantime in West Perth, the vacancy rate has increased from 1.9 per cent in January this year to 6.1 per cent in July, the highest rate since January 2005.
"Current market conditions in West Perth have led to tenants moving to emerging fringe areas such as Subiaco, Herdsman, Belmont and North Perth," Mr Lenzo said.
"iiNet, Mirvac and Rio Tinto have moved to new buildings in Perth's suburbs within the last six months."
Looking ahead, a further 9,464sqm of space is scheduled to enter West Perth in the current cycle, which, the report said, is not enough to meet tenants' demands, leading to further developments in Perth's suburbs.
"Forecasts for the next two sharply differentiated market with tenant demand concentrated at the upper end of the market which will perform more strongly than the lower quality buildings.
"Already there are signs tenant choices for high quality space in the larger contiguous areas will be limited."
