West Perth is re-emerging as Perth’s busiest and best performing suburban office market, agents say.
The area had been treading water for the past five years but had begun reassert itself in the minds of tenants looking for well located, good quality stock and this was leading to a drop in vacancy rates, they said.
“Outside of the CBD, West Perth records the most demand for office space and this is largely driven by resource sector tenants, many who are once again seeking short-term project space,” Colliers International office leasing executive Harry Mettam said.
West Perth’s reign as Perth’s leading fringe/suburban office market was due to its close proximity to the CBD, with prime buildings heavily prioritised, Knight Frank office leasing partner Greg McAlpine said.
Mr McAlpine said stabilised rents were giving owners the justification needed to meet the market on incentive levels and allowed tenants a high-quality fitout.
Savills Australia Perth office leasing associate Mark Stanhope said the West Perth office market had demonstrated its first signs of recovery after five years, with positive tenant demand attributing to a decline in total vacancy.
“The total vacancy rate for West Perth was recorded at 14.8 per cent in December 2018, down from 15.6 per cent in June 2018,” he said.
“Rents have remained stable in the 12 months to December 2018 and likely to continue with the limited amount of new supply entering the market. Premium and A-grade offices are well sought-after in the fringe market.”
Despite West Perth rents and incentives being relatively stable due to the moderating vacancy rate, the market remained vulnerable to competition from the CBD.
During the March quarter, Colliers International found West Perth A-grade net face rents averaged $367 per square metre down from $370 per square metre in March 2018, while A-grade incentives ranged from 35 per cent to 40 per cent.
Average B-grade net face rents were generally stable at $300 per square metre during the March quarter, with incentives between 35 per cent and 40 per cent.
Mr Mettam said in the wider suburban market, there had been an increase in government-funded tenants who needed to have a presence in a suburban location close to the clients they were servicing.
“The fringe office markets in Belmont, Burswood and Rivervale are gaining traction with larger tenants, previously based in industrial areas, starting to explore an office presence to better serve their client base,” he said.
“Subiaco is still seen as a well-located office market that will benefit from the redevelopment of the former Princess Margaret Hospital and Subiaco Oval.
“Many of the better quality buildings in Subiaco have still managed to lease in a soft market, in particular buildings that are close to the Subiaco train station.
“Buildings that are struggling to compete are the smaller privately-owned assets that have not had any form of capital expenditure and, as such, can’t compete with buildings that have been repositioned in nearby West Perth.”
Knight Frank research analyst Nicholas Locke said a majority of high-quality prime office space was centred near the Subi Centro precinct and offered retail amenity close to public transport, which were highly desirable features to discerning occupiers who were currently spoilt for choice.
“The Subiaco East precinct surrounding Hay Street and extending west from Thomas Street is characterised by older stock and more fragmented ownership due to a greater proportion of strata-titled buildings,” he said.
“Further take-up of remaining spaces in the Subi Centro precinct may be required before significant inroads can be made in the Subiaco East precinct.”
Meanwhile, Colin Gilchrist, CBRE advisory and transaction services office leasing associate director, said landlords in many suburban locations were becoming increasingly proactive in securing new tenants with significant capital upgrades of their buildings, including end-of-trip facilities, contemporary entry statements and upgrades to the external appearance among the examples.
Mr Gilchrist said net face rents in Perth’s fringe office market, including suburbs such as Herdsman and Leederville, have decreased on average 10 per cent, with incentives ranging from 25 per cent up to 45 per cent.
“We believe incentives have peaked and expect to see these stabilise between 25 to 35 per cent over the next 24 months,” he said.
“In line with the current CBD trend, we are seeing tenants continually flock to modern and upgraded buildings that have existing fitouts that may be utilised or re-positioned for their purpose.”
Mr Mettam said many suburban landlords were grappling with office space that had sat vacant for some time.
“To counter that, we expect to see a bigger shift towards refurbished or repurposed office space as suburban landlords, like their CBD counterparts, try to stand out from the competition,” he said.
“Perth’s suburban office market will definitely be a tenant-driven market for the remainder of 2019 although general inquiry increases lead me to be optimistic about the short to medium-term outlook.”
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