Context surrounding Perth’s latest office construction boom

Jones Lang LaSalle Research’s definition of Perth’s Central Business District (CBD) is illustrated in the map below.

The market comprises 1.6 million square metres of office space, three quarters of which is in excess of 20 years old. The CBD’s office core is St Georges Terrace (see dotted line).

Just over half of total office stock has an address on this street. As well as a higher density of tenants which enables greater client proximity, many properties on the Terrace offer spectacular views of the Swan River and western suburbs over to the Indian Ocean.

 

 
Clear office development trends have emerged in recent decades. Almost three quarters of space completed in the 1980s and 1990s (projects coloured grey) is located on St Georges Terrace or Adelaide Terrace (which is a continuation of St Georges Terrace in the east of the CBD). Since the turn of the millennium, construction activity has been concentrated in the western half of the market (projects coloured pink). This area contains over 90% of space completed between 2001 and 2013.

An analysis of five-year periods reveals further highlights. Financial deregulation and the entry of foreign banks to Australia preceded the completion of five large projects between 1991 and 1995. These buildings account for a sizeable 12.4% of today’s market stock. Much of their space was uncommitted upon completion, contributing to vacancy doubling between 1990 and 1992 (to 31.8%). Around the same time, prime grade incentives (deducted from net rent) reached as high as 60% and average net effective rents were lower than outgoings for 15 consecutive quarters.

Unsurprisingly, space completed over the following five years (1996 to 2000) accounts for a meagre 0.7% of current office stock. The mining boom decade of 2001 to 2010 delivered 14.7% of the CBD market we know today. However this ten-year figure is less than the five-year contributions made between 1986 and 1990 (16.6%) and 2011 and 2015 (a forecast 16.9%). Although it is likely that some completions may be delayed until the following year, 2015 is emerging as one of the strongest years on record for new office stock in Perth.

Eight developments with planning approval and sufficient pre-commitment are expected to be finished in 2015. They total 146,000 square metres and a below-trend one third of the space will be located on St Geges Terrace. The only other period that comes close to this supply figure is the biennial 1991 to 1992, when 224,000 square metres reached completion. Larger, more efficient floor plates; modern end-of-trip facilities; and the latest in sustainable building credentials will become more readily available to tenants. The extent of development activity reflects developers’ great confidence in the Perth CBD market.

 
Anna Garvey is a Senior Research Analyst for Jones Lang LaSalle in Australia, based in Perth.

 
Feature Image: Kings Square, Perth