Perth's office vacancy rate dips to two-year low, but is still among the highest in the country

Vacancies in premium-grade buildings experienced a sharp decline to 6.3 per cent.

Office fitouts, floor sub-divisions and leasing incentives have helped attract new tenants into city buildings and have contributed to the recovery, with legal firms, business services, government, resources and engineering firms, IT companies, finance, and property services the most active in the CBD market, according to Colliers International.

Colliers International office leasing associate director Dustin May said Perth’s office market had turned a corner after five challenging years.

“For several years we’ve been witnessing a lot of reshuffling in the market as tenants relocate to take up better deals in upgraded buildings but in a very noticeable change, we are now seeing growth from existing tenants as well as demand from new businesses entering the CBD market,” he said.

Perth’s A-grade and better quality B-grade buildings will benefit from a tighter office market. Photo: Stefan Gosatti/Fairfax Media

“Office space in a number of CBD towers is being absorbed far more quickly than anticipated and demand remains strong for quality fitouts because they allow tenants to use all of their incentive towards a rent reduction.”

Colliers International office leasing director Daniel Taylor said 19,000 square metres of premium office space was absorbed in the second half of 2017, with the recovery most prominent in the CBD’s west.

“In 2018, the beneficiaries of this absorption will be Perth’s A-grade buildings and better quality B-grade buildings that have been repositioned,” he said.

“Tenants are still conservative about their expenditure but they are also cautiously optimistic about their space requirements.

“As 2018 unfolds, we also expect to see downward pressure on incentives in premium and A-grade buildings where landlords are comfortable with their occupancy levels.”

CBRE office advisory and transaction services senior director Andrew Denny said recovery in the Perth market was continuing and he expected the positive sentiment, which first took hold in the last quarter of 2017 to continue throughout 2018.

“The noticeable differences are sharply higher inquiry and transaction levels. Many tenants, particularly those in the mining, engineering and co-working sectors, are now seeking larger tenancies, an occurrence which rarely happened before mid-2017,” he said.

“CBD net absorption for 2018 is forecast to be 52,000 square metres, the highest total since 2012, and a huge difference from the average minus-21,000-square-metres of absorption Perth has experienced for the past five years.”

JLL’s WA head of office leasing Nick Van Helden said while remaining elevated, the Perth CBD vacancy rate was expected to continue to recover throughout 2018 and 2019, with steady levels of leasing eiquiry and several large deals looming.

“As a result, we forecast further stabilisation in rents and leasing incentives, as vacancy slowly recovers,” he said.

“The availability of good quality, fitted-out space continues to drive leasing inquiry and activity.

“The opportunity for suburban tenants to centralise into the city, and CBD occupiers to upgrade their office space given the attractive rents and incentives on offer is anticipated to keep driving leasing activity. Prime grade vacancy will continue to decrease while vacancy will settle in secondary stock.”

Mr Van Helden said the correction in rents during the past two years has made the CBD an affordable option to tenants who might previously been priced out of the city when vacancy was low.

“CBD owners are increasingly achieving leasing success by subdividing floors and offering speculative fit-outs, catering to smaller suburban tenants looking to enter the CBD market,” he said.

Savills WA office leasing director Shelley Ritter said business confidence had improved and recent employment growth was helping net absorption in the leasing market.

“We are expecting a continuation of two-tiered market characteristics, with premium and A-grade space metrics pulling further away from secondary, particularly in the west and mid-CBD locales,” she said.

“In that regard, the market may start to see incentives at the prime end taper off, albeit slightly, especially in prime buildings where occupancy levels are normalising.