Perth approaches office vacancy turnaround

Perth’s office market
Perth’s office market

Perth’s much-maligned office market is just months away from turning the corner, analysts say, with the vacancy rate expected to peak later this year.

Speaking at a CBRE Market Outlook event, CBRE head of research, Australia, Stephen McNabb says that while Perth’s CBD market will still feel the effects of the mining downturn for some time, the city has already bottomed out.

“We think that with much of the majority of the office supply now delivered, Perth’s office vacancy will peak at the end of 2016,” McNabb says.

Better signs: Perth office market moves on from horror 2015

“This will bring a little more stability to the market in 2017 as the worst of the increases in vacancy are now behind us.”

“Beyond that, we will see gradual net absorption, albeit at higher vacancy levels, which will impede a return of rent growth in the next two years.”

Perth skyline

Perth’s CBD office market has climbed above 20% vacancy.

Research after the first quarter of 2016 revealed Perth’s office vacancy rate was nudging 20% and would soon pass that mark, while vacant space had climbed from 47,863sqm in January 2012 to more than 330,ooosqm.

But McNabb says it is possible that some office buildings will be converted to apartments and hotels, similarly to what is occurring in Sydney and Melbourne, which will reduce pressure on vacancies.

Landlords to narrow focus

Strategies to attract and retain tenants should be the main goal for retail and office landlords over the next 18 months while the Perth market begins to stabilise, McNabb says.

“Until we see some stability enter the Perth market in 2017, occupiers will be looking for opportunities to improve business performance through workplace strategy and manage future real estate costs through leasing structure, office upgrades and relocating.”

“While there will be an ongoing focus on cost savings in the office and retail sectors, landlords need to look more strategically at using real estate to retain and attract tenants.”

Many Perth offices are being speculatively fitted out in the hope of securing new tenants.

Perth office owners are being advised to find new ways to attract and retain tenants.

Foreign money will find its way west

CBRE Asia Pacific head of research Henry Chin says Asian investors are increasingly casting their gaze outside Melbourne and Sydney in a bid to secure major assets.

“Traditionally, Asian investors only want to buy A-grade buildings in major gateway cities such as London, Sydney and Melbourne, but they’re starting to move away from these locations as they become more adventurous,” Chin says.

“It’s not all about China. The most active outbound Asian investor is actually Singapore and they want to continue deporting their capital into Australian markets.”

“Korea is another big market to watch, as they are the most aggressive investor, with a number of insurance-based investors from this region looking for development opportunities in Australia.”