The only way is up for CBD rents

TENANTS are being encouraged to lock in contracts as rents continue to rise in Perth’s tightening office market.

As the property industry waits for an announcement over which of the several proposed buildings around the CBD will be the first to get out of the ground, vacant office space is being quickly snapped up by tenants keen to avoid being caught out.

Subsequently, for the first time in years, Perth’s vacancy rates are plummeting and rents are increasing.

And the bad news for tenants is that this situation is expected to continue for several years – the time it will take to get a new office tower out of the ground.

Leading agent Knight Frank has reviewed its rental growth forecasts for the second time this year and is now predicting a rental growth of between 20-35 per cent over the next 18 months.

Knight Frank is predicting a 20 per cent growth in premium rents by December 2006, up to $425 per square metre from the current $300-$375.

An even larger increase is expected for A-grade rents, which the company forecasts to increase 30 per cent from the current $230-$295 to $360.

B-grade rents are forecast to increase 35 per cent from $150-$180 currently to $230/sq m by late 2006.

Knight Frank managing director Gary Ryan said the company had previously forecast rents to increase around 10 per cent a year over the next few years, but the state’s booming economy, a “red hot” leasing market and increasing building costs were all putting significant pressure on rents.

“Twelve months ago the prospect of building a new office building requiring rents of $430-$500 per square metre seemed unrealistic, but now it is not only realistic, but essential,” Mr Ryan told WA Business News.

“Our current forecasts show that total net absorption of CBD office space will be around 100,000 square metres for calendar 2005, leaving only 75,000 square metres of predominantly lower grade space available in 2006.

“At the same time our research is showing current identifiable demand in excess of 230,000 square metres, so clearly we need new buildings to start now.”

He said the replacement cost of most CBD office buildings was now about 60 per cent higher than current values and there would be at least a two-year lag before any new space could be built.