First State signs tenant

The latest major leasing deal for the CBD's new office towers has got over the line, with the federal government's Department of Education, Employment and Workplace Relations signing on as the anchor tenant for Queensland-based First State Developments' project at 226 Adelaide Terrace.

WA Business News understands the department will lease 4,500 square metres of the 13,000sqm on offer, for about $600/sqm, leaving two-thirds of the building available for other tenants.

The building is one of three CBD office towers, construction of which started this year without a tenant pre-commitment.

First State's other project, at 432 Murray Street - a $38 million, seven-storey office building - is one of these, due for completion late this year.

Nearby, hotel operator Stamford Land Corporation Ltd announced its decision last month to build a 13-level office tower at its 905 Hay Street site, instead of a luxury hotel as planned.

Knight Frank director Ian Edwards said the strong demand for office space in the city had allowed developers to build on speculation.

"It's a sign of the strength of the market that owners are building without a pre-commitment, but it's mainly in sought-after areas. It's difficult to commence projects in suburban fringe areas, because it's hard to get funding," Mr Edwards told WA Business News.

Several proposed developments in the CBD are yet to secure an anchor tenant, including Finbar's office tower on the old Fairlanes Bowling site and the redevelopment of the Grosvenor Hotel.

Griffin Group is also due to begin marketing its 24,000sqm building next to the BHP-anchored City Square.

Mr Edwards said that, while the first few rounds of pre-leasing for new projects had passed, project owners were unlikely to be left without pre-commitments.

"I don't think there's an issue with not having enough tenants, but if a project has already commenced construction, it will most likely have an earlier completion date, so tenants are more likely to sign up for a pre-commitment. If a company has begun building, there's a lower risk profile," he said.

"But I don't think there'll be an overbuild. All the buildings that are on paper will come out of the ground."

Rents in the CBD have peaked at $900/sqm, although one floor of the Quadrant building totalling more than 1,000sqm is being advertised at $925/sqm. West Perth rents are at about $630/sqm.