There’s unlikely to be a return to record low CBD vacancy rates any time soon.
PERTH'S office vacancy rate could climb to 9 per cent by the end of the year on the back of additional supply and the emergence of a sub-lease market, according to Colliers International autumn 2009 market indicator report.
The report also found the increased vacancy rate was expected to put downward pressure on rents over the course of the year, with rents forecast to come off between 10 and 15 per cent.
Colliers International Research Manager Erwin Edlinger said the expected contraction in rental values was coming off a high base after almost two years of strong growth in the Perth market.
"We need to take into account that they've shown significant growth in the previous 18 months to two years," Mr Edlinger said.
"In the 12 months from June 2007 to June 2008, premium grade rents in the Perth CBD climbed some 40 per cent and A- and B-grade rents by almost 60 per cent and almost 40 per cent respectively, so they are coming off a high base."
While Perth's premium grade buildings have been 100 per cent occupied for the past two consecutive years, the delivery of new office buildings this year and the increased amount of stock becoming available in existing A-, B- and C-grade buildings is expected to change that situation.
Bishops See Stage 1 (pictured) was recently delivered to the market with tenants in place, while 100 St Georges Terrace, 503 Murray Street and 138 Terrace Road will also be delivered to the market this year.
Major tenants to have relocated into Bishops See in recent weeks include KPMG, whose former office space in Central Park is currently being marketed, as is one floor of Macquarie's former three floors of office space in Allendale Square.
The softening of demand and increase in supply revealed in the latest Property Council of Australia figures, which showed a negative net absorption of space in the Perth CBD of -8,351 square metres for the six months to December 2008.
"That negative figure appears to have been generated by an increase in supply thanks to a combination of returning refurbished stock, new construction, backfill space and the emergence of a sub-lease market, together with softening demand," Mr Edlinger said.
Perth's office vacancy rate is also coming from a tight position, rising from effectively zero in mid-2008 to 1.3 per cent in January.
The Colliers report forecasts vacancy rates to rise to between 7 and 9 per cent by December 2009, and could go as high as 15 per cent by 2010-11.
Colliers director of office leasing Ian Campbell said Perth CBD should return to a more balanced market as vacancies began to move towards long-term averages.
"That would mean better news for tenants, as we'd expect to start seeing flexible leasing options and rent pressures ease somewhat as the marketplace becomes more competitive," he said.
CB Richard Ellis director of office services Lachlan Lewis said sub-lease space was emerging as a dominant part of the market.
CBRE is currently talking to a handful of tenants with a total of about 20,000sqm of sublease space.
"There are a lot of short term sub-leasing opportunities out there," Mr Lewis said.
"There are two markets - the sub-lease market and the direct lease market. Eight months ago there was no market because there was no stock.
"From a leasing point of view, the pinch has been on since June/July last year, and the emergence of the sublease market and scarcity of cash means tenants are downsizing, delaying decisions, and fighting existing landlords with regards to rent review and rates."
CBRE research suggests a vacancy rate of between 7 and 8 per cent by year's end, rising to 10 per cent by the middle of next year.
Meanwhile, BIS Shrapnel is projecting the vacancy rate will rise to 12 per cent in two years, and climb even higher under a worst-case scenario.
The forecaster is predicting the CBD vacancy rate to rise to 8 per cent in June 2010, and to 12 per cent the following year; but the latter figure could increase to 17 per cent if minerals investment in the state collapsed.