Perth’s commercial property market has returned to a more stable footing in 2019 following the end of the resources boom, with rents growing for the first time since 2013 amid consecutive vacancy declines over the past two years.
After peaking at 22.5 per cent in January 2017, vacancy has fallen consecutively over the past two years with sentiment improving and business confidence on the rise.
Perth's economy and office leasing demand, driven off the back of activity in the oil and gas sectors, as well as iron ore, is now seeing the emergence of a wide range of industries looking for space in the CBD.
New research by CBRE has unveiled prime face rents in Perth’s CBD office market lifted 1.1 per cent during the second quarter of 2019.
Prime incentives have also trended down since the third quarter of 2018 — contributing to 10.2 per cent net effective rental growth over the past 12 months.
“At the beginning of the year we anticipated that in 2019 Perth would lead the nation in terms of prime CBD net effective rental growth,” CBRE head of research Bradley Speers said.
“That scenario is indeed playing out and we expect the market will record net effective rental growth of around 15 per cent this year.”
A-grade areas of Perth’s CBD office market are now showing the strongest signs of recovery with the market expected to record a net effective rental growth of around 15 per cent this year.
Limited supply seems to be a key driver with many tenants entering the market seeking space between 6,000 square metres and 10,000 square metres across large floor plates.
“Over the past 18 months, there has been a notable shift in sentiment, with a significant upturn in the number of both expanding and new tenants in the Perth CBD,” CBRE head of Perth office leasing Andrew Denny said.
“Specifically, the premium and A-grade parts of the market are the standout performers, with face rents increasing across seven buildings – mainly A-grade – over the past eight months.”
Perth's premium grade office stock has seen positive absorption over the past 12 months with the Premium building vacancy reducing significantly, largely offsetting the growth in prime stock levels.
Diversification in the CBD, now home to student accommodation, cinemas, and major new retail, office and lifestyle hubs, has also increased vibrancy and bolstered the city's office markets resurgence.
“We expect the July 2019 CBD vacancy rate to be below 18 per cent, with continuing steady, but modest, falls in vacancy moving forward,” Denny said.
Looking ahead, Denny said while upward momentum would continue to build in the market, growth would be relative to the current cycle.
“The market is headed in a positive direction, albeit, we are not anticipating large, quick changes.”
“Although the latest figures reflect high effective rental growth changes over the next three years – the strongest nationally - the base was very low to start with.”