$244 million has been spent on office upgrades across 29 CBD buildings since 2013.
In the five years since falling commodity prices stalled demand for office space, Colliers International says Perth’s CBD office market is slowly rebuilding with the emergence of a new-look tenant base, a swathe of upgraded buildings and new infrastructure and links to the vibrant streets of Northbridge helping the recovery.
Office leasing agents Daniel Taylor and Dustin May said new tenants from the suburbs were helping to backfill CBD space and although their presence would fall well short of offsetting vacancies left by resource firms, the leases were generating a steady hum of activity in the market.
“A repositioning of the CBD is underway with the office market now affordable to a new range of businesses and that’s helping to inject a more diverse tenant mix and as it continues, the city will be slightly less reliant on the resources sector,” said Colliers International Associate Director Office Leasing Daniel Taylor.
“Restoring a viable occupancy level to the CBD in the longer-term means casting a wider net to find new tenants and business clusters, and innovative solutions will be needed to find new uses for existing buildings.”
The contraction in the office market started in 2012 when China signalled its pace of infrastructure growth was unsustainable and introduced reforms to broaden economic growth.
The ensuing fall in demand and price for commodities and the transition from investment-based construction to production in the resources sector, triggered a sharp downturn in demand for CBD offices where vacancy peaked at a 22-year high of 22.5 per cent earlier in 2017.
In response to the high vacancy and forecasts it will linger, CBD landlords embarked on a spate of upgrades to modernise and reposition their buildings.
According to data from property and building analytics firm Cordell, about $244 million has been spent on office upgrades across 29 CBD buildings since 2013.
“Lobbies, end-of-trip facilities, lifts, staff amenities, individual floor upgrades and plant and equipment rooms are being renovated by owners wanting to ensure their building is competitive,” Mr May said.
“Institutional owners led the upgrades and as the tenant flight to quality took hold, buildings owned by syndicates and private investors also joined the refurbishment rush.
“It’s an on-going investment that shows no sign of slowing, especially for hard to lease B and C-grade buildings because it’s working. Refurbished buildings are attracting new businesses into the city while also capturing existing tenants who are looking to upgrade.”
Colliers International Director Investment Services Ian Mickle said the shakeout in the CBD that started with rising office vacancies in 2012 was being keenly watched, especially by counter-cyclical buyers who believe the market is at the bottom of the cycle and who have mandates in play for office assets.
“CBD buildings valued at $545 million changed hands so far in 2017 compared with $376 million in 2016 and there were six bids for Westralia Square but a lack of supply is holding back the deal flow,” Mr Mickle said.
“There’s appetite from local, national and offshore buyers for long-term leased investments in premium and A-grade buildings and there’s also some appetite for leasing risk but there’s a harder road ahead for B and C-grade assets with high vacancies.
“The next test for the market will be the sale of the 25 per cent share in QV1.”
Despite a decline in the number of CBD office workers since 2012, which Colliers International estimates at 9,500, Mr May said recently delivered projects ensured infrastructure was in place to streamline commuter access to the city and the new precincts unfolding at Perth City Link.
“In the past year we’ve had the opening of the Perth Bus Port and the Charles Street Bus Bridge which allows buses to by-pass four congested Northbridge intersections and by the end of 2017, King Street will extend through Perth City Link to Lake Street,” he said.
“For the first time in more than a century, office workers, pedestrians and cars will be able to travel between the western end of the CBD and Northbridge via the King Street extension, which will cross through Perth City Link’s midway point.”
According to the Metropolitan Redevelopment Authority, Yagan Square will finish later this year and when it opens in 2018, there will be 20 new food and beverage tenancies in the centre of the city and another access point between Northbridge and the CBD.
Mr Taylor said momentum from new infrastructure was propelling the city forward even though the office market faced a long recovery.
“Major infrastructure projects have been delivered and there’s more in the pipeline to ensure the city is well-placed to rebuild occupancy levels,” he said.