Perth’s office vacancy tightens

Perth’s office vacancy rate dropped to 17.3 per cent in 2023, reflecting the city’s continued recovery from historic highs, JLL research shows.

The real estate group's December quarter office vacancy report shows a 14.9 per cent national office vacancy, a 0.7 per cent increase on the previous year and the highest level since 1995. 

But for Perth, office occupancy has been on a downward trajectory since the pandemic, when the vacancy rate exceeded 20 per cent.

The city’s recent peak CBD vacancy rate was 24.7 per cent in Q3 2016.

Perth recorded the highest net absorption, or net demand rate, in the country, at 75,400 square metres in 2023.

JLL director real estate economics Ronak Bhimjiani said this reflected the strength of Perth’s office market relative to other jurisdictions.

“We’ve had about 63,100 square metres of new supply in Perth over the last year,” he said.

“Despite this, we’ve seen vacancy rates fall, and that’s because there has been strong underlying tenant demand.”

He added that Perth's 2023 net absorption figure was the strongest reading since 2011, during the peak of the resources boom. 

Perth’s 17.3 per cent office vacancy rate is the lowest since late 2015, when it reached 23.5 per cent.

Earlier that same year, Perth’s office vacancy was 16.6 per cent.

The sharp increase was linked to a flood of new supply in 2015, via Brookfield’s Tower 2, Kings Square 1 and 2, Golden Square, David Malcolm Justice Centre and 999 Hay Street.

This coupled with a mining downturn led to negative net absorption.

Speaking on the latest figures, JLL head of office leasing Australia Tim O’Connor said Perth’s strength reflected activity in the mining and resources sector.

“The resource sector is in expansion mode and was very active in the Perth market over 2023,” he said.

“Furthermore, strong demand for project space supports our view that the sector is planning for expansion over the medium-term.”

Rents in the CBD for prime office stock increased by 2.4 per cent in 2023, as supply in that segment tightened.

“As the number of options for prime grade contiguous space tightens, we expect to see a reduction in leasing incentives and prime gross effective rents increasing by closer to 5.0 per cent in 2024,” JLL said.

The Property Council of Australia will publish its office market data next week, with the figure expected to be lower than JLL’s.

This is largely due to the PCA’s redrawing of its research boundaries and the partial exclusion of East Perth in the data, where JLL reported a 41.5 per cent office vacancy in the final quarter of 2023.

JLL head of research Australasia Andrew Ballantyne said business conditions were mixed across the country.

“The variance in business sentiment and conditions are reflected across office markets with strong net absorption results recorded in Perth and Brisbane; while Melbourne and Sydney saw a contraction in occupied stock,” he said.

“However, the consistent theme across all office markets was strong occupier demand for the best-in-class assets and a willingness to pay a higher rent if the space can be designed in an efficient manner to reduce the cost per employee.”