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SPACE SHIFT: The City of Stirling is likely to be homw to the majority of proposed new suburban office developments.

Suburbs to ease the squeeze

Increased building activity in Perth's suburbs will create more than 400,000 square metres of new office space over the coming years, as more tenants are pushed out of the traditional CBD and West Perth markets by record low vacancy rates.

The Property Council of Australia's first survey of suburban office developments in Western Australia, released this week, shows a total of 88 projects currently being marketed in 29 suburbs across Perth.

If completed, they will add 429,896sqm of space to the suburban market - more than the total amount in West Perth - with about one third of this either currently under construction or recently completed.

The majority of new offices (52.7 per cent) will be built in Perth's northern suburbs, especially those within the City of Stirling, such as Osborne Park, Herdsman and Stirling itself.

If all the proposed space in this area is built, it will be the third largest office market behind the CBD and West Perth.

Eastern suburbs - including Belmont, Burswood, Victoria Park and Kewdale - will account for less than one third of new stock, while about 11 per cent will be built in Subiaco, one of the first suburbs to attract tenants relocating from the CBD and West Perth.

Property Council of Australia (WA) executive director Joe Lenzo said the growing number of suburban projects would create a permanent place for a third office market in Perth.

"That's a fundamental shift that's going to stay with us and change the dynamics of the Perth office market from St Georges Terrace or West Perth to some of these fringe areas," he said.

Mr Lenzo said there was little risk that the new stock would create higher vacancy rates in the city or an oversupply generally, because it was demand driven and usually required pre-commitments by tenants.

"The way it's been planned and released has been piece by piece, so it's a managed growth," he said.

About 62 per cent of suburban offices under construction or recently completed have been pre-committed by tenants, including large corporates such as Rio Tinto, Newmont Mining and John Holland.

But whether the full amount of new space proposed will be built depends on the ability of developers to secure anchor tenants - a pre-condition for most lenders.

"The way the financial institutions are looking at property development...is they've certainly pulled the reins in and you're not going to get too many speculative projects getting bank finance or financial institution finance because it's quite restrictive," Mr Lenzo said.

Meanwhile, the vacancy rate in Perth's CBD has fallen again, from 0.5 per cent in January to a new record low of 0.3 per cent in July.

Just more than 3,700sqm of space remains available across five buildings, ranking the CBD second behind West Perth as the tightest office markets in the nation.

And while more than 100,000sqm of space will be completed in the city next year, it's unlikely to provide much relief in the vacancy rate, with the bulk already pre-committed.

From 2010 onwards, almost 300,000sqm is forecast to come on line, although it is expected to restore equilibrium to the demand equation, rather than create an oversupply.

"Obviously our vacancy rates will go up once these developments take place and our general predictions are that they'll stabilise around 10 per cent, maybe lower than that," Mr Lenzo said.

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