Pain not over for Perth office market

Perth’s office leasing market is showing signs of life.

Perth’s office market will continue to be pounded by the mining downturn, with rents in the city’s skyscrapers to fall a further 23% and stay depressed for 10 years, according to researcher BIS Shrapnel.

Prime net effective rents have already dropped 60% and the city’s vacancy rate has blown out from 4% in 2012 to about 22%, the firm says.

“(The) average stated rents are not expected to regain current levels over the next 10 years,” BIS Shrapnel says.

There us an expectation that Perth’s office market will shortly begin to recover as the number of new completions slowed down, the researcher says.

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“Not so. The next two years will be far from a gentle time for the Perth office market.”

BIS Shrapnel estimates Western Australia is less than 40% of the way through a near 70% fall in engineering construction.

While investment in iron ore has been falling for a number of years, the decline in oil and gas investment is just starting, according to BIS Shrapnel senior project manager Lee Walker.

Perth skyline

Perth’s office market currently has about 22% vacancy.

“Falls in resources investment will swamp the positives for office employment coming from increased mining production,” Walker says

The completion of Woodside’s new 55,000sqm headquarters in 2018 is expected to push the ­vacancy rate to 24% by June, BIS Shrapnel says.

JLL already put the level of empty space in the city at 24.5% for the March quarter, with the other mining-affected city, Brisbane, reaching 18.2%. This compares with Sydney with only 6.8% of its office towers vacant and Melbourne at 9.2%, according to JLL.

“Rising vacancies and increasing competition to secure tenants will put further downward pressure on market rents” Walker says.

“It’s too early to call the bottom of the cycle. There’s more pain to come for building owners. The balance of power in leasing negotiations will clearly favour tenants over the next few years.”

This article originally appeared on www.theaustralian.com.au/property.