Perth office market recovery firms as vacancies hit three-year low

The Property Council of Australia has released its latest Office Market Report – and it’s positive news for Perth’s CBD and its fringes. Cannings Purple Corporate Affairs Director and property expert Fran Lawrence, who moderated the expert panel for the report’s launch, analyses the key findings and snapshots and considers the outlook for 2019.

Perth is coming back.

That was the message from CBRE Senior Director Advisory & Transaction Services Andrew Denny in his keynote address at the launch of the PCA’s benchmark Office Market Report, which revealed Perth CBD office vacancy rates had dropped to their lowest point in more than three years.

The report, released this morning to the biggest audience in four years, revealed the CBD’s office vacancy rate had fallen to 18.5 per cent – marking the first time it has dipped below 19 per cent since July 2015.

Mr Denny said the latest figures, which showed tightening vacancy in each of the A-Grade and B-Grade sectors of the market and only a slight increase in vacancy in premium stock, demonstrated the market recovery in Perth had filtered through and become entrenched.

“Sub-lease space is now below where we were at the peak of the mining boom… it’s a very positive sign for the market,” he said.

“Perth is not a stagnant market… (the vacancy rate decline) is not spectacular, but it’s steady, it’s moving in one direction and it will come under further pressure in the next three years with no new supply due to come online in that time.”

Demand saw 6752sqm of office space soaked up by tenants in the CBD over the six months to January 2019, bringing the total net absorption figure for the 12 months to January to 15,333sqm.

Mr Denny said that figure was likely to be much higher in 2020, with a continued flight to quality, improving economic conditions and a lifting oil and gas sector acting as drivers. He also tipped a significant lift in rents for the CBD market, predicting effective rents – taking into account incentives – would substantially increase for the first time in seven to eight years and climb in the order of 50 per cent by 2022.

While national figures revealed Perth was the Australian capital with the highest vacancy rate, Dexus Head of Office Leasing Chris Hynes said the story for the Perth market was stronger than the figures indicated.

“We have assets in east coast and WA markets, and we have great confidence in the outlook for Perth,” he said.

Key stats for the Perth CBD (July 2018 to January 2019):

• Total vacancy down from 19.4 per cent to 18.5 per cent
• Premium vacancy up from 4.1 per cent to 4.5 per cent
• A-grade vacancy down from 17.7 per cent to 16.3 per cent
• B-grade vacancy down from 31.6 per cent to 30.2 per cent
• C-grade vacancy down from 22.9 per cent to 21.1 per cent
• D-grade vacancy down from 18.7 per cent to 13.0 per cent

Mr Hynes and fellow panel members Adam O’Donoghue, Head of Asset Management at Primewest, and Debbie Morrow, Property Manager at Woodside, agreed the market had seen a clear shift in terms of what tenants looked for in office premises, with building facilities, surrounding amenity and location all playing important roles.

The OMR team is doing a great job on stage, sharing the latest news on office leasing in #perth. The news is good with vacancy rates trending down. 👏🏻 @franjlawrence pic.twitter.com/1VQnCmRsCs

— Sandra Brewer (@SandraBrewerWA) February 7, 2019

The new figures come after the latest CommSec State of the States data identified WA as the second-fastest growing economy in the country.

The WA Government also revealed late last year that the State Budget was due to return to surplus in 2019-20 for the first time in six years.

A little more than 64,000 sqm of office space was withdrawn from the market in the six months to January, mostly due to refurbishment of St Georges Terrace’s Woodside and Commonwealth Bank buildings and Central Park.

A total of 55,000 sqm was added to the CBD market over the same timeframe and another 70,897 sqm will come online this year.

The positive signs in the CBD were replicated in West Perth, with a fall to 14.8 per cent vacancy rates and increased demand for A-grade stock.

More than 5200 sqm of West Perth space was filled in the six months to January and less than 2500 sqm will be added this year.

Like the city, West Perth has no new office space in the medium-term pipeline.

Key stats for West Perth (July 2018 to January 2019):

• Total vacancy down from 15.8 per cent to 14.8 per cent
• A-grade vacancy down from 15.6 per cent to 11.5 per cent
• B-grade vacancy up from 12.9 per cent to 13.7 per cent
• C-grade vacancy up from 20.3 per cent to 20.5 per cent
• D-grade vacancy down from 23.0 per cent to 21.7 per cent

Fran Lawrence leads Cannings Purple’s Corporate Affairs team and has more than 20 years’ experience in media and communications. She is an expert in communication in the property sector. Contact Fran.