Only way is up for Perth office market
Perth commercial real estate agents say the city’s embattled office market has finally bottomed out, and are already trumpeting its revival.
Realcommercial.com.au reported in May that analysts were predicting the market would reach its turnaround point at the end of the year, but CBRE senior director Andrew Denny says the fightback may already have begun.
Vacancy rates in the Perth CBD have hovered at well over 20% for most of this year as the last of a procession of new stock came online and the city continues to feel the effects of the mining industry’s downturn.
But Denny says there are almost no new buildings on the horizon until at least 2018, meaning the city’s office market can begin its recovery and enjoy a decline in vacancy rates.
We are currently seeing a substantial increase in transaction levels
“With no immediate new supply, increasing demand for CBD office space from suburban tenants, a reduction in sublease space availability, and interest from new and existing tenants looking to expand, it’s likely that vacancy rates could fall,” he says.
Denny says 2014 and 2015 saw an unprecedented and unsustainable flood of new buildings enter the market, pushing vacancy rates sky high.
“In a short 18-month period from mid-2014 to the end of 2015, we witnessed a total of 161,206sqm in new office supply enter the market,” he says.
“With a total CBD net lettable area of 1.6 million square metres prior to this, the market saw the equivalent of an additional 10% of the entire CBD enter the market in the form of new buildings. The new supply accounted for just over half of the increased vacancy from the low of just 4.2% in mid-2012.”
But there are now no new buildings in the pipeline until 2018, when the Woodside building comes online.
Denny says with vacancy rates still high but expected to decline, tenants are moving to sew up new leases while substantial incentives are still on offer.
“We are currently seeing a substantial increase in transaction levels, with many tenants recognising this as an ideal time to upgrade their accommodation and capitalise on the attractive terms on offer,” he says.
“With the strong flight to quality, the market will have a completely different view of prime vacancy within the next six months.”