Perth’s office market appears to be in the beginning stages of a cyclical uplift, boosted by a booming commodities market and strong local economic growth. These tailwinds are supporting renewed positivity among landlords and occupiers following years of relatively soft tenant demand and slow rental growth.
As borders have reopened and Western Australia leads the nation’s continued economic recovery, buoyancy in Perth’s commercial real estate markets has returned. According to the Property Council of Australia’s Office Market Report vacancy rates have steadily declined from highs of 19.9% in December 2020 to 15% in January 2022, and the Perth office market experienced the highest level of demand in the country in 2021, with annual net absorption running at more than 67,550 sqm.
Cushman & Wakefield research shows that office rents across the Perth CBD remain steady. In a sign of longer-term confidence in the local office market, investment activity also reached its highest levels since 2013.
Mark Clapham, Joint Managing Director, Cushman & Wakefield Perth, says that favourable conditions are expected to build on the strength of 2021 and continue throughout 2022.
“Demand for office space in the sub-2000sqm range in both the Perth CBD and metropolitan markets has been strong in the first half of 2022,” Mark says. “This will continue to support take-up of Premium and A-Grade office space over the short to medium term.”
Digby Sutherland, Joint Managing Director, Cushman & Wakefield Perth, added, “We saw active tenants and leasing enquiries during the first quarter of 2022 outpace the 2021 quarterly averages. Using annual net absorption levels as a proxy for market demand shows we can expect steady growth in 2022.”
With mining comprising 47% of Western Australia’s economy, the office market is largely influenced by the strength of the sector and increasing commodity prices. This can flow through to demand for more space as employers expand their workforces.
Mark Clapham says that indicators such as commodity prices and engineering job vacancies tend to correlate with absorption levels. And the RBA’s index of bulk commodity prices has risen 41.5% in the 12 months to April 2022, recording a record high 12-month average of 127.4.
These figures align with the increase in 12-month net absorption experienced across the office market during 2021. With the Chamber of Commerce and Inductry of Weastern Australia predicting growth in business investment activity of 75% in 2022-2023, this should buoy the local office market over the mid-term.
Digby Sutherland says that although conditions are improving, some broader constraints still need to be navigated. “Busines and consumer confidence are still firming as the pandemic recedes, and now inflationary pressures are increasingly front of mind, which can impact office development activity in the short term.”
However, the reopening of the Western Australian border and return of migration should provide a welcome boost to businesses. Like many other businesses across Australia, addressing labour shortages is high on the agenda.
Since the height of the pandemic, Western Australia’s unemployment rate has contracted from 8.5% in June 2020 to 3.4% in December 2021, the lowest in the country and the lowest rate recorded in 13 years.
Mark Clapham says that with the resources sector particularly affected by border closures, a return to normality will support growth which will flow through to the office market.
“Businesses have found it difficult to hire the workers they need over the past couple of years amid border closures,” Mark says. “With the reopening, we expect an influx of skilled labour that will further support demand for quality space.”
Both Mark and Digby believe the WA office market to be well placed to capitalise on solid economic growth over 2022. “Lower vacancy rates, higher absorption levels, high commodity prices, and forecasted growth indicate that the Perth market is set to grow and attract significant attention from investors over the coming years,” Digby said.
As borders have reopened and Western Australia leads the nation’s continued economic recovery, buoyancy in Perth’s commercial real estate markets has returned. According to the Property Council of Australia’s Office Market Report[1] vacancy rates have steadily declined from highs of 19.9% in December 2020 to 15% in January 2022, and the Perth office market experienced the highest level of demand in the country in 2021, with annual net absorption running at more than 67,550 sqm.
