13/08/2020 - 06:00

Slight uptick in office vacancies

13/08/2020 - 06:00

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Perth’s latest office vacancy rate increased marginally since February, but the state's CBD and West Perth markets took out the top spots for most vacancies in the country.

Slight uptick in office vacancies
Perth’s overall vacancy rate for the six months to July 2020 was 18.4 per cent. Photo: Gabriel Oliveira

Perth’s latest office vacancy rate increased marginally since February, but the state's CBD and West Perth markets took out the top spots for most vacancies in the country.

The Property Council of Australia’s Office Market Report, released today, found Perth’s overall vacancy rate for the six months to July 2020 was 18.4 per cent - sitting at the same level this time last year. 

This was slightly up from 17.5 per cent recorded in February. 

In the six months to July 2020, an additional 17,174 square metres of supply was added, while 12,500sqm was withdrawn, creating a total vacancy of 331,570sqm. 

The council’s office vacancy rates, calculated on July 1, is not determined by whether the tenant’s employees are occupying the space or working from home, but measured by leases that are in place for office space.

Source: Propety Council of Australia Office Market Report

Property Council of Australia WA executive director Sandra Brewer highlighted that Perth’s Premium and A-grade office space continued to perform strongly but vacancies rose in the lower grades.

Perth’s July 2020 Premium vacancy fell to 6.8 per cent, from 7.4 per cent in February 2020; A-grade was steady at 15.8 per cent; B-grade rose to 28.7 per cent (25.9 per cent in February) and C-grade was 21.7 per cent, from 20.5 per cent. 

Meanwhile, on the city’s fringe West Perth’s vacancy rate grew almost five per cent from 17.9 per cent in February to 22.1 per cent In July 2020, which the report noted was largely due to pre-pandemic moves by four tenants across five buildings, freeing up 17,000sqm of A-grade space to move to the CBD. 

 Source: Propety Council of Australia Office Market Report

Nationally, Australia’s office vacancy increased over the past six months to 9.5 per cent – the first time in four and a half years.

 CBD vacancy across the country remained lower than vacancies in non-CBD space, which recorded its lowest demand on record.

 East Melbourne and Canberra were the only markets to record a decrease in vacancy over the six months to July 2020.

“Perth’s CBD market, which was thought to be on the cusp of a turnaround before the pandemic, has so far experienced relatively moderate effects,” Ms Brewer said. 

“The industry will be monitoring tenant demand and sublease vacancy over the next six months as the economic impact of the pandemic plays out.”

 Ms Brewer said Perth was the only capital city in the country to report a reduction in space available for sublease.  

CBRE senior director of office leasing Andrew Denny said the Perth office market had so far been relatively sheltered from the impact of COVID-19.

“Sublease availability – a key health indicator of the office market - has increased by 17,000sqm, reflecting a 59 per cent increase from the end of March 2020,” Mr Denny said. 

“The sector’s resilience will also be aided by a minimal supply pipeline, with no new supply due to enter the market over the next 18 months.

 “Despite this, rents and incentives are expected to come under pressure, with the rental increase and incentive decreases recently seen, expected to reverse.

 “Since social restrictions eased in June, most businesses have returned to the office and activity is returning to the CBD.”

Savills Australia director office leasing David Evans said Perth’s enquiry rates had increased over the past few months with occupiers leveraging the conditions to reset rents and improve their workplace environments.

Mr Evans said enquiries during and right before the Covid pandemic began (March – May 2020) were circa 39-40 with a spike in enquires jumping to 52 from June to now.

“In challenging markets, it's crucial to look over the immediate horizon and set the foundations for future opportunities,” he said. 

“Owners need to ensure any vacancies are positioned to be relevant and competitive in the market and also be prepared to provide flexibility to compete with the emerging sublease market.” 

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