Pressure on in the ’burbs

More than 40,000 square metres of space in suburban office buildings have been vacated during the past 12 months, a result driven more by companies downsizing rather than growth in the number of firms moving to the CBD.

A new report on suburban offices, released by Y Research, shows the office vacancy rate across 50 suburbs in Perth has increased over that period, from 14.6 per cent at the end of June 2016 to 17.7 per cent.

Over that period, more than 1,000sqm were vacated in 11 suburbs, including major suburban office markets in Northbridge, East Perth, Leederville, Fremantle and Midland, Y Research principal Damian Stone said.

“Challenging economic conditions and increasing competition for tenants, large and small, from Perth CBD, West Perth and other suburban markets, have placed pressure on Western Australia’s suburban employment hubs,” Mr Stone said.

Y Research’s report coincided with the release by CBRE of its latest analysis of the CBD office market, which showed vacancies in central Perth fell by 1 per cent in the six months to the end of June, to 21.5 per cent.

CBRE said 34 suburban tenants had taken advantage of favourable leasing deals to establish a presence in the CBD since the beginning of 2016, accounting for 28 per cent of the total deals signed in the city over that period.

Mr Stone said while relocations had played a role, the bigger driver of increased suburban vacancies was the decision by many companies to downsize.

Businesses with large office footprints such as The Sunday Times, Boral, National Australia Bank and the Water Corporation all downsized to smaller spaces in the past six months, Mr Stone said.

Mr Stone said the higher vacancy in suburban markets had given tenants an unprecedented choice of premises, with a clear trend of companies moving to recently completed buildings.

Examples in the past six months included Bunnings’ shift from Welshpool to a new building in Rivervale, Satterley Property Group’s move from South Perth to City West, and Bethanie Group moving from Claremont to Northbridge.

Tenants’ flight to quality, Mr Stone said, was heaping pressure on landlords of older office buildings.

“With multiple choices for A-grade space in desirable suburbs such as Subiaco, Northbridge and Herdsman, there are limited or no tenants in the market for older, secondary properties in non-core locations with limited amenity, public transport links and building services such as end of trip facilities,” Mr Stone told Business News.

“As a result, market rents for high-quality spaces have stabilised in the past six months, while discounting continues across secondary properties and non-core locations.

“Secondary property owners unable to compete on building quality are using price to drive absorption – asking prices under $100 per square metre are increasingly commonplace.”

Mr Stone said those challenges would only increase in the short to medium term because of the continued competition from CBD landlords, amenity shortfalls in major markets, and vacant space in recently completed developments.

“With leases expiring across the next 18 months for a number of tenants that relocated to suburban developments in 2007-08, retaining tenants spoilt for choice in suburban office locations will be the major challenge for the year ahead,” he said.