Perth’s office market has emerged as the hottest leasing market in the country, with falling vacancies putting upwards pressure on rents in top-grade office stock.
The Property Council of Australia said Perth’s overall vacancy rate had declined slightly to 18.4 per cent in the six months to July 2019, a marginal improvement on the previous six months where vacancies were 18.5 per cent.
The Property Council said options were getting increasingly tight in premium office buildings, with vacancies plunging from 8.1 per cent in July last year to 3.8 per cent currently.
More than 22,421 square metres of leasing deals were signed in premium buildings in the first half of 2019.
The Dexus-owned 240 St Georges Terrace was a standout performer, with a long list of new tenants pushing the building to more than 92 per cent occupancy.
Major new leases at 240 included Macquarie Group, Wood & Grieve Engineers, Worley Parsons, Iluka Resources, HWL Ebsworth, BP, Nous Group and CBH Group.
Property Council WA executive director Sandra Brewer said the success at 240 demonstrated leasing opportunities were available in Perth’s CBD.
“Landlords have been working overtime to offer outstanding leasing deals and incentives to attract and retain tenants,” she said.
CBRE associate research director Ben Martin-Henry said the declining vacancies had underpinned face rental growth for the first time since 2013, as rents rose 10.2 per cent in the 12 months to June 30, the best result in Australia.
“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,” he said.
“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."
Mr Martin-Henry said incentives were trending downwards, having racked up three consecutive quarters of declines since peaking at 55 per cent, and were now around 47 per cent.
CBRE senior director of office leasing, Andrew Denny, said seven CBD buildings had increased face rents in the past eight months, most of those in the premium or A-grade sectors.
“The major price mover is in incentives, which in some buildings have fallen by up to 10 percentage points so far this year,” Mr Denny told Business News.
“In the three years to end of 2021 we are expecting effective rent growth of around 50 per cent in premium and A-grade buildings.”
Colliers International director of office leasing Daniel Taylor said he expected vacancies to continue to decline in Perth, albeit at a modest rate.
However, he said there would be limited demand for the city’s older office stock.
“Perth remains a two-tiered office market,” Mr Taylor said.
“We are seeing a reduction in incentives in some prime-grade buildings, however, while competition for tenants remains strong in B-grade buildings and there has been some absorption, we don’t expect to see effective rental growth for B-grade buildings during the next year.”
Mr Taylor said landlords of B-grade buildings that had invested on upgrades were drawing the most interest from potential tenants.
Colliers International director of office leasing Dustin May said the entrance of WeWork to Perth illustrated the diversity of tenant demand emerging in the CBD.
“Perth’s office market, especially in terms of demand for space by mining and energy companies, is expected to benefit from major investments under consideration by business and government,” he said.
“We are also starting to see the emergence of new industries taking up CBD office space with the education and IT sectors leading the way.
“This is supporting much-needed tenant diversity which will hold the CBD office market in good stead.”
