Focus to stay on tenant retention and attracting smaller tenants into the CBD.
Vacancies have fallen slightly in Perth’s much-watched office market and while the leasing activity has been welcomed, Colliers International says competition for tenants will remain strong in the year ahead and landlords will need to be on the front foot to stem vacancies.
Speaking at the launch of the Property Council’s office market report, Colliers International’s Associate Director Tenant Advisory Theo Smyrniotis said the competitive leasing terms in Perth’s office market were offering tenants a valuable opportunity to reset rent as a percentage of their business turnover.
“The level of leasing activity in the CBD and West Perth bodes well for the WA economy but tenants still have a lot of space to choose from and a broad range of incentives,” Mr Smyrniotis said.
“Incentives vary across the market with some buildings being more aggressive than others.”
While some CBD and suburban owners were exploring new uses for their buildings, the industry gathering was told few conversions would be economically viable.
“In this market, it’s more important to focus on tenant retention and that means starting conversations with tenants early and, if you can, make improvements to the building that make them more attractive because that creates an additional incentive for tenants to remain,” Mr Smyrniotis said.
“A lot of businesses are also quite local in the suburban market so they are even ‘more sticky’ in terms of moving out of the area but once a building is empty, it becomes a real problem.”
According to the office market report, the Property Council’s half-yearly snapshot, the overall vacancy in Perth’s CBD dropped from 22.5 per cent to 21.1 per cent in the six months to July with relocating suburban tenants, sub-leasing withdrawals and competitive leasing terms helping to support demand for office space.
West Perth, Perth’s second biggest market, also recorded a more encouraging first half with the vacancy falling to 15.0 per cent from 17.5 per cent.
Vacancies fell across all office categories except for the CBD’s B-grade buildings where it was 30.8 per cent compared with 30.3 per cent in January.
According to Colliers International Director Office Leasing Daniel Taylor, attracting smaller tenants to the CBD will be one of the keys to tackling the vacancy in B-grade buildings.
“Transactions for smaller tenancies dominated the office market in the first half of 2017 and the drift of smaller tenants into the CBD is being met by more accommodating landlords,” Mr Taylor said.
“In a city-wide trend, owners are investing in building upgrades to attract and retain tenants and there’s also a readiness to break up floor plates and install speculative fitouts that will offer convenience and affordability to smaller tenants.
Perth has the highest office vacancy for an Australian capital city. The average national office vacancy was 10.2 per cent.