UPGRADERS THE KEY TO SLOWING PERTH OFFICE MARKET
As the mining downturn continues to take its toll on the Perth economy, the office market is no exception. The Perth CBD is in the unenviable position of having the highest office space vacancy rate in Australia and as more new stock comes on stream by the end of 2015 things are unlikely to get any better in the near future.
According to Jones Lang LaSalle, the vacancy rate during the first quarter of 2015 was 16.6% with negative net absorption of 11,900sqm. With the new Kings Square, Brookfield Place and Old Treasury developments, the estimated amount of new floor space in the CBD will be close to 150,000sqm by the end of 2015. While much of this new space has tenancy secured, those tenants that are moving in will be leaving behind the space where they are currently residing.
The situation in West Perth doesn’t look much better as the former mecca for mining companies and associated services has felt the resources downturn even more acutely.
West Perth also has the disadvantage of housing relatively older stock in need of refurbishment and/or major renovations. The competition from newer stock in the CBD has seen even further exits from the area as tenants realise opportunities to upgrade into better accommodation at competitive rates.
While this may seem like a very negative outlook for commercial property owners in Perth, there is some positive activity in the sub lease market as larger tenants are downsizing and subleasing extra space. This has lifted the number of tenant enquiries wanting to take advantage of the current market and possibly upgrade.
Tenant upgrades, primarily from B to A grade spaces is where the activity is at. There is a lot of new space coming on stream and those who have new or refurbished space available are at an advantage. Now is the time to tap into the desire from tenants for more superior space and attract those upgraders.
Property Council of Australia (PCA) data reinforces the trend in movement from B Grade to A Grade office space, with the vacancy rate in January 2015 for A Grade space in the Perth CBD at 15.2% while B Grade space was at 17.4%. Net absorption for A Grade space in the six months to January 2015 was 1,131sqm while it was down to -17,827sqm for B Grade.
In West Perth, the divergence between the two grades is even more obvious, with a vacancy rate of 6.8% for A Grade and 12.9% for B Grade.
In particular, a number of tenants that have been eyeing off property in the CBD, who may be in less central locations such as East or West Perth or even further afield are where much of the activity in terms of new leases is likely to come from over the coming months. Many tenants consider that now is the time to secure more centrally located or higher quality office space at a reasonable rent.
Most experts see the tough times in the commercial office market lasting through until at least 2017.
The new developments that are coming on stream in the CBD offer a range of facilities and features that bring added competitiveness when weighed up against older stock with retail, restaurant and other extra amenity featured within the new buildings.
Tenants are also attracted to the CBD due to a range of factors including the recent revitalisation of the city that has seen an emergence of small bars, street art and a more vibrant after hours atmosphere. Public transport links are also much more convenient in the city with the convergence of train and bus stations providing an escape from increased traffic congestion and growing parking fees. Top features that tenants will be looking for when upgrading or looking for new space include new or refurbished space, the potential for extra car parking, accessibility to public transport and other amenities in the immediate vicinity as well as sustainable aspects such as green star ratings.
Some new developments also include child care facilities which are becoming a more sought after option close to parent’s workplace rather than their homes.
Overall, it is certainly a tenants market as more stock is added to the Perth CBD and the economy continues at a slower pace than previous years. While times are tough, it is possible to take advantage of activity in the upgrade market. For those with older or less desirable space it may be time to take the opportunity to refurbish or upgrade facilities in order to attract tenants in such a competitive marketplace.