There are signs that Perth’s office market is on the road to recovery, with the entry of new coworking operators helping the city record the largest surge in rental growth in the country and consistent declines in vacancy rates, according to new figures.
The overall Perth CBD vacancy rate for the six months to July 2019 – 18.4 per cent, down from the 18.5 per cent in January – was the best result since July 2015 when the vacancy rate was 16.6 per cent, according to the Property Council’s July 2019 Office Market Report.
It’s the fifth consecutive reporting period in which the city’s overall office vacancy has recorded a dip, with 15,923 square metres of net absorption occurring during the first half of 2019.
More significantly, CBRE associate director research Ben Martin-Henry said Perth’s declining vacancy rate had underpinned face-rental growth for the first time since 2013, with rents surging 10.2 per cent in the 12 months to June 30, making Perth Australia’s “number one performing market”.
“This is in stark contrast to its performance in recent years as the economy has struggled to bounce back from the decline in the mining sector,” Mr Martin-Henry said.
He predicted that this was just the beginning of Perth’s recovery, citing a decline in incentives as another positive indicator.
“Signs that this turnaround won’t be short-lived are encouraging as both vacancy and incentives have declined significantly as demand for prime office space picks up.
“Since peaking at 55 per cent, incentives have now seen three consecutive quarters of declines coming in at 47 per cent halfway through the year, with further declines expected.”
CBRE senior director office leasing Andrew Denny said a lack of supply in the development pipeline would also sustain the contraction in vacancy rates.
“Vacancy has fallen for five consecutive quarters in the Perth CBD after peaking in January 2017. With no new supply forecast until 2022, which is three years away, and with continuing demand, vacancies will only continue to fall.”
There are signs that rentals may also be staging a recovery, albeit in isolated sectors of the market.
The premium and B-grade segments recorded positive demand, with absorption for the six months to July of 20,417 square metres and 8474 square metres respectively, according to the Property Council report.
Mr Denny said A-grade assets in particular were a positive growth story.
“Seven CBD buildings have now increased face rents in the past eight months. Most of these are in the A-grade sector of the market,” he said.
“The major price mover is in incentives, which in some buildings have fallen by up to 10 percentage points so far this year. In the three years to end 2021 we are expecting effective rent growth of around 50 per cent in premium and A-grade buildings.”
This trend towards premium assets was also observed by Graham Postma, Savills’ WA managing director and national head of office leasing.
“The ongoing trends of recentralisation and ‘flight to quality’ continue to have a positive impact on overall vacancy as forecast. Strong activity at the premium end of the market is now translating into effective rental growth as landlords reduce the level of incentives on offer to reflect the strong demand and limited availability in this sector,” Mr Postma said.
“Demand is now focusing on the better quality A-grade buildings, particularly those that have made significant investments into refurbishment works.”
Mr Postma said the entry of large-scale coworking operators into the Perth market had been a key part of the city’s recovery.
“Coworking groups have featured heavily in Perth over the past six months with WeWork entering the market with a significant commitment into Central Park and more recently William Square, Northbridge. IWG have expanded their presence, with Spaces set to open a new offering in the redeveloped Raine Square. This increased offering will result in continued competition in the smaller-suite market,” he said.
The Property Council identified Dexus’ 240 St Georges Terrace as one of the standout office assets in the first half of 2019.
The 46,900-square-metre tower has recently secured tenants including Macquarie, Wood, Worley, Illuka Resources, HWL Ebsworth, BP, Nous Group, CBH Group and currently has a 92.5 per cent occupancy rate.
“This demonstrates there are opportunities despite the challenges facing landlords in central Perth,” Property Council WA executive director Sandra Brewer said.
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