Looking For WA Office Space? Tenants Spoilt For Choice In Their 'Flight To Quality'

Western Australia's commercial office market has experienced a vacancy rate increase as tenants upgrade to higher quality suburban and CBD office properties.

According to West Australian commercial property information and research firm, Y Research, tenants have vacated 40,000 square metres of office space across WA's suburban office markets in the past 12 months.

Their West Australian Suburban Office Report showed that the vacancy rate across Perth’s 50 suburban office markets increased over the past 6 months to 17.7% from 16.5% in November 2016.

Y Research Chief Problem Solver Damian Stone said the figures were a result of challenging economic conditions and increasing competition for office tenants.

"Large and small, from office owners in the Perth CBD, West Perth and other suburban markets, have placed pressure on Western Australia’s suburban employment hubs," he said.

In the past six months, 11 suburbs recorded more than 1,000 square metres of negative net absorption including major markets, Northbridge, East Perth, Leederville, Fremantle and Midland.

While relocations to the Perth CBD and suburban markets have played a role, the major driver of higher vacancies in the first half of 2017 continues to be downsizing with companies, such as the Sunday Times, Boral, NAB and the Water Corporation.

Y Research said that despite the higher headline vacancy rate, it became increasingly evident that office tenants were undergoing a "flight to quality".

The phenomenon was defined to allow tenants unprecedented choice of tenancy due to improved affordability and an increased choice due to recent office developments and the level of vacancy.

The flight to quality trend was highlighted by tenants upgrading from secondary spaces in their current suburb or relocating to a neighbouring market, typically within 5 km.

This trend is reportedly having a significant impact on Western Australia's suburban office markets.

With multiple choices for A-Grade space in desirable suburbs such as Subiaco, Northbridge and Herdsman, there are limited tenants in the market for older, secondary properties in non-core locations with inadequate amenity, public transport links and building services such as end of trip facilities.

As a result, market rents for high quality spaces have stabilised in the past six months, while discounting continues across secondary properties and non-core locations. Secondary property owners unable to compete on building quality are using price to drive absorption.

Asking prices under $100 per square metres have become increasingly commonplace.

Ten years on from the peak of Perth’s office space crunch and the wave of decentralisation of tenants to the suburbs, Y Research believes the short-term challenges are mounting for Perth’s suburban office markets.

"A lack of choice a decade ago spurred significant change in the employment base of the metropolitan area– there are now approximately 100,000 office workers located outside the Perth CBD.

"With leases expiring across the next 18 months for a number of suburban tenants who relocated to suburban developments in 2007/8, retaining tenants spoilt for choice in suburban office locations will be the major challenge for suburban employment hubs in the year ahead."