Suburban A-grade buildings the best office performers

A-grade buildings in suburban locations are the best-performing office stock in Perth, according to fresh research that found just more than 20 per cent of all commercial office buildings in the metropolitan area are vacant.

However, with limited supply forecast for the next four years, vacancies are expected to reduce to more normal levels, according to the inaugural Western Australian Commercial Office Yearbook, a partnership between Business News and Y Research.

The report revealed a vacancy rate of 20.9 per cent across all metropolitan Perth markets, with A-grade suburban buildings holding the lowest vacancy in the city, at 11.9 per cent, excluding D-grade buildings, which make up a small proportion of the market at 2.7 per cent.

Y Research director Damian Stone said the report identified and reviewed occupancy and key characteristics of more than 2,500 buildings across the city, collectively containing more than 4 million square metres of office space.

Mr Stone said the performance of suburban A-grade buildings was tied to strong occupation from the state government, as well as major corporates such as CIMIC, Mondadelphous, Telstra, iiNet and BGC.

The report found a large disparity of vacancies by grade, illustrating the flight to quality evident across office markets in Perth for several years.

Mr Stone said 47.6 per cent of the 856,470 square metres of office stock available for lease in Perth was in C-grade buildings, which have a vacancy rate of 27.6 per cent.

By contrast, the current A-grade vacancy rate across Perth is 14.6 per cent.

Not surprisingly, buildings developed since 2000 had the lowest vacancy rates by age, at 16.3 per cent, and 15.4 per cent in Perth CBD.

Developments completed in Perth since 2010 include Brookfield Place, Kings Square and Capital Square, and account for 19.2 per cent of CBD stock, the report said.

“Recent developments, such as Capital Square, have seen a number of large companies vacate existing stock for new buildings,” Mr Stone said.

“New buildings have advantages in terms of floorplates, higher sustainability ratings, end of trip facilities, building services and new workplace designs.”

Mr Stone said new developments in the CBD had a larger impact on market conditions, with vacancy rates in West Perth and suburban markets more closely tied to location rather than building age.

The report also found limited new stock to come to market  between this year and 2023, giving landlords time to find tenants for the current vacancies, with the market expected to return to more normal levels.

Click here to order the comprehensive report, which includes details of what the next wave of development may look like in the CBD and suburban markets, analysis of major market moves in recent months and as a detailed overview on the biggest tenants in 49 office markets of more than 5,000 square metres across Perth.