Perth office vacancies hit 22-year high
Perth’s office vacancy rate has hit its highest level in 22 years, but a growing number of leasing agents believe the worst is over.
The Perth CBD vacancy rate rose to 22.5 per cent in the six months to January, up from 21.8 per cent. It’s the highest level since January 1995.
Offices across the city have been emptying since 2012, when the mining investment boom peaked and the vacancy rate sat at 3.3 per cent.
As a result effective rents, which include incentives, have plunged by more than 50 per cent.
Property Council WA executive director Lino Iacomella said Perth was nearing the end of a decade-long supply of new office towers, which had contributed to the high vacancy rate.
“The pause in new CBD office supply in 2017 removes the major contributor to increased office vacancy rates in Perth and will give the office market an opportunity to stabilise over the course of the year,” Mr Iacomella said.
CBRE senior director Andrew Denny said Perth had reached “peak vacancy”.
“It is the smallest increase in vacancy rate since 2012 and there is limited new future supply,” Mr Denny said.
“We can comfortably say Perth has reached peak vacancy.”
Flight to quality
Mr Denny expected rents in premium and A-grade office buildings to stabilise but there would be more weakness for lower-quality buildings as tenants took advantage of lower rents and upgraded office space.
The vacancy rate for premium office space fell to 16 per cent, from 16.7 per cent. The overall vacancy rate was forced up by increases in A to D-grade buildings.
“I think we will need some alternative spaces for some B or C-grade buildings and others are just going to have vacancy,” Mr Denny said.
Tenants are also moving from offices in the fringe to the CBD.
This is contributing to significant weakening in West Perth, a market favoured by the junior and mid-tier mining sector that achieved a zero vacancy rate during the peak of the boom.
The vacancy rate has climbed from 14.8 per cent to 17.9 per cent.
Savills WA managing director Graham Postma said there had been a noticeable increase in demand from tenants who had previously put off relocation or expansion plans.
“On the surface, while the market appears to be marred by weak demand for office space, leasing activity has been above par as evidenced by a strong run of deals in the closing stages of 2016,” Mr Postma said.
Mr Postma said the vacancy rate would plateau this year.
JLL head of office leasing Nick Van Helden said while the vacancy rate would remain high until 2019 rents and incentives would stabilise this year.
Mr Denny said rents and incentives would stabilise at the premium end of the market.
