Perth’s office leasing market has undergone a dramatic shift in the past three months.
THE office vacancy rate in Perth has risen above 1 per cent for the first time in nearly two years, as staff consolidation from the economic slowdown reduces demand for office space.
The Jones Lang LaSalle office market report for the December 2008 quarter shows the office vacancy rate for Perth reached 1.3 per cent, with more than 17,000 square metres of office space for lease.
Sub-leasing has also re-emerged as companies re-assess their accommodation requirements, with 3,600sqm of the total made up of sub-lease space, according to the December quarter report.
Sub-leasing space has continued to rise in recent weeks, with Rio Tinto putting 10,000sqm of space in various locations up for sub-lease, and Telstra looking to sub-lease up to 5,000sqm of space in 251 St Georges Terrace.
Macquarie is reportedly looking to sub-lease some of its pre-committed space in Bishops See 1.
Rents appeared to have reached a ceiling in 2008, according to the report. No growth was recorded for the December quarter, the first quarter in four years where rents failed to rise.
In annual terms, prime gross effective rents increased by 8.8 per cent in 2008 to reach an average of $956/sqm, with secondary rents up 13.1 per cent to $723/sqm.
That contrasts with the extraordinary rental growth in 2007, when prime gross effective rents rose by 62 per cent and secondary rents by 67 per cent for the year.
Jones Lang LaSalle senior analyst Andrew Bouhlas said vacancy rates could reach between 4-5 per cent and rents down a further 10-20 per cent by year's end, as more companies consolidated.
"In October last year demand was falling as companies began consolidating and looking at their accommodation requirements," Mr Bouhlas said.
The situation is a major turnaround from mid-2008, when the Perth CBD office vacancy rates reached a record low of 0.3 per cent in mid-2008 and rents were nudging the $1,000/sqm mark.
Incentives are also starting to re-emerge for existing buildings, having not been a feature of the market since mid-2006, as owners compete to secure tenants.
CB Richard Ellis director of office services Lachlan Lewis said the sub-lease market, which began to re-emerge in the middle of 2008, was having the most impact.
"Where tenants previously had plans to take back space they had sublet, they're falling by the wayside," Mr Lewis said.
"Direct leasing vacancy is still a bit tight, and we anticipate that to free up a fair bit as lease expiries come up."
A total of 82,300sqm of new office space is scheduled to come online in 2009, including Bishops See 1, Century City, and Alluvion, with 85 per cent of new space pre-committed.
A further 205,000sqm already under construction is due for completion between 2010-2012.
The vacancy rate in West Perth also increased for the quarter, reaching 2.2 per cent, up from zero in mid-2008.