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The race is on to get tenancy precommitment

FOUR major construction projects, collectively worth more than $800 million, stand to revolutionise the standards of office accommodation and force others to follow or be left behind.

The Woodside Building, now under construction, together with Westralia Square, Bishop’s See and 56 Mounts Bay Road are set to stimulate a great deal of movement in the CBD commercial leasing market when, and if, they open their doors.

Property Council of WA policy and communications officer Geoff Cooper said the new projects were bound to have a positive effect on leasing activity and would more than likely prove popular with companies holding multiple leases.

“The new developments will also allow tenants with a number of leases throughout the CBD to consolidate their office accommodation into a single tenancy, which they have not been able to do for some years,” Mr Cooper said.

“This could allow tenants to move up through the grades.”

As premium office space in the new developments was taken up by tenants willing and able to pay the rents, likely to be between $350 and $380, A and B grade building tenants were likely to consider a move to a better quality premises.

To retain and attract tenants, building owners would come under pressure to keep their premises up to scratch.

“The new commercial buildings will be state of the art and there will be pressure on other building owners to keep their premises fitted out in a style suitable for modern and contemporary tenants,” Mr Cooper said.

“And those with lower grade buildings who are unable to retain or attract tenants will have to look at alternative uses for their commercial building, which could include residential or other uses, such as a call centre.”

He said there was a smattering of B, C and D grade buildings all throughout the CBD, but a more significant number in the eastern end of town.

If all four projects proceed, up to 155,000sqm of premium office space would be introduced to the CBD.

But the property sector holds serious doubts that all will proceed, with current demand unlikely to meet such a supply.

The growing popularity of fringe CBD suburbs as an alternative business address, the rationalisation of government departments and the recent collapses of HIH Insurance and small telcos all pose a threat to the demand for new space.

Woodside’s $250 million new home at 240 St Georges Terrace is under way but question marks still hang over Westralia Square, Bishop’s See and 56 Mounts Bay Road.

Of the 47,000sqm of space the Woodside building will create, 32,500sqm will be taken up by Woodside itself, leaving just a small amount to be absorbed by other tenants.

The property sector agrees the short-term demand is there for one more major building, but current demand would more than likely not support the 108,000sqm that would be created if the three other projects came on line.

Mr Cooper said that, during the past six years, an average 8690sqm of office space was absorbed every six months.

He said there was a trend developing whereby companies were choosing to move from the CBD to fringe suburbs to avoid the CBD rents, which they regarded as too high.

CB Richard Ellis research manager Andrew Woodley-Page agreed and cited Hatch Engineering’s move to Northbridge and NRMA’s move to new premises in West Perth as examples.

Rationalisation of government departments, one of the CBD’s biggest tenant groups, from 46 down to 23 also created a degree of uncertainty.

These factors increased CBD vacancies and could dilute the need for more office space, Mr Woodley-Page said.

While developers of Westralia Square, Bishop’s See and 56 Mounts Bay Road maintain they are confident of success, each also maintains no soil will be turned without at least 30 per cent tenant precommitment.

According to Chesterton International research analyst Chris Freeman, it was now a race to see who got the precommitment first.

“The new buildings will provide a lot of opportunities for companies with offices around the CBD to bring them together in one space … but there are only so many people who will be willing to pay the rents those buildings will be asking for,” Mr Freeman said.

The time could not be better to negotiate new tenancies, with close to 90,000sqm in leases set to expire next year, followed by close to 80,000sqm in 2003, according to figures from Mr Woodley-Page. Lease expiries are then predicted to drop off until 2007.

Westralia Square project consultants James Fielding Investments plan twin towers, each with up to 30,000sqm of office space.

James Fielding director Greg Paramour said the $300 million project would remain flexible, with the potential for the towers to be built one at a time, years apart, if demand for premium office space was not high enough.

A revamped $200 million Bishop’s See proposal, designed by Melbourne architects Denton Corker Marshall in collaboration with Perth firm James Christou and Partners, was recently unveiled by the Hawaiian Group. Group development manager Stuart Duplock said they had received positive feedback from potential tenants.

Cape Bouvard, developers of the proposed18-storey $70 million tower at 56 Mounts Bay Road, also is searching for potential tenants.

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