Metro office forecast highlights challenges for Perth market

Few office projects will be built in Perth’s metropolitan markets in the next few years as tenants continue their drift to the CBD and low rents dampen suburban development prospects.

Colliers International’s Metro Office Research & Forecast Report for the first half of 2018, found the challenging conditions were likely to persist but more proactive landlords were responding with ready-to-go fitouts.

Antonio Trimboli, Executive for Office Leasing at Colliers International said the fitout trend that had been occurring in the CBD for the past few years, had spread to the suburban market with landlords investing in office fitouts to attract tenants.

“The consensus in the suburban market is that tenants are still gravitating toward options which are fitted-out and furnished,” Mr Trimboli said.

“Smaller tenants have a tendency to leave their search for new office space a lot later than larger occupiers and this further emphasises the need for landlords to be proactive, rather than reactive.

“We’ve had a number of instances over the past six months where tenants have chosen to move into tenancies that are fitted and ready to go despite the building being a lower quality than other non-fitted options.

“Tenancies with existing fitouts offer not only offer greater convenience to tenants, but also allow them to use all of the incentive offered toward rental abatement."

The report examined new buildings larger than 1000sqm, and found that during 2017, just 25,727sqm of new office space was added to the suburban office market with a big chunk of the space in two projects—25 Rowe Avenue, Rivervale and 5 Milldale Way, Mirrabooka.

A total of 41,520sqm of office space is under construction and about half will be delivered in 2018 with the completion of projects in Subiaco, Joondalup and at 16 Ventnor Avenue in West Perth, where Colliers has been appointed to lease 1500sqm of office space in a mixed use-project.

The remaining 20,000sqm is in Fremantle and is scheduled for completion in 2020.

Mr Trimboli said the number of leasing inquiries had picked up since the start of 2018 and in an encouraging sign, many tenants were looking for more space as well as better office accommodation.

The 16.7 per cent vacancy in West Perth, Perth’s biggest office market after the CBD, mostly consists of vacated B and C-grade space as tenants upgrade into the area’s A-grade buildings.

A-grade net face rents in West Perth in the December quarter averaged $370/sqm, down 3.9 per cent from December in 2016.

In Herdsman and Osborne Park, the report found the vacancy at the beginning of March had fallen to 16.9 per cent or 32,845sqm, from 17.1 per cent in August.

Mr Trimboli said weak demand was expected to continue for office space in East Perth.

While state government pre-commitments have anchored many recent suburban office developments, the report said that with lower occupancy costs now available in the CBD, few if any new government decentralisation moves were expected.

It also noted that recent briefs for pending state government expiries requested proposals from agents and landlords for office space in the CBD and its fringe areas.

Mr Trimboli said tenant clusters were still occurring in the suburbs, particularly around government agencies, with proximity to Centrelink in Mirrabooka attracting two of the three new leases negotiated there by Colliers International.

Colliers International Perth WA commercial property real estate

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