Vacancy declines as more tenants relocate into CBD offices.
The vacancy in Perth’s CBD office market has fallen below 20 per cent for the first time in two years as lower rents, office fitouts, floor sub-divisions and leasing incentives attract new tenants into city buildings.
Figures from the Property Council of Australia show the January vacancy in Perth’s CBD at 19.8 per cent, down from 21.1 per cent in July.
Perth’s office market is also starting 2018 with vacancies in premium-grade buildings dropping to 6.3 per cent and a watchful eye on rising demand for project space from resource companies.
Colliers International Associate Director Office Leasing Dustin May, who presented the Perth Office Market Report to a PCA breakfast audience this morning, said Perth’s office market had turned a corner after five challenging years.
“For several years we’ve been witnessing a lot of reshuffling in the market as tenants relocate to take up better deals in upgraded buildings but in a very noticeable change, we are now seeing growth from existing tenants as well as demand from new businesses entering the CBD market,” Mr May said.
“Office space in a number of CBD towers is being absorbed far more quickly than anticipated and demand remains strong for quality fitouts because they allow tenants to use all of their incentive towards a rent reduction.”
Further confirmation that a recovery, albeit a modest one, was underway, was the CBD’s office space net absorption of 22,178sqm, slightly under the 25,130sqm recorded in July.
Colliers International’s Director Office Leasing Daniel Taylor said 19,000sqm of premium office space was absorbed in the second half of 2017 and the recovery was most pronounced in prime buildings in the CBD’s west.
“In 2018, the beneficiaries of this absorption will be Perth’s A-grade buildings and better quality B-grade buildings that have been repositioned,” Mr Taylor said.
“Tenants are still conservative about their expenditure but they are also cautiously optimistic about their space requirements.
“As 2018 unfolds, we also expect to see downward pressure on incentives in premium and A-grade buildings where landlords are comfortable with their occupancy levels.”
Theo Smyrniotis, Colliers International Director Tenant Advisory, said it was generally accepted the market had bottomed.
“Tenants probably have a 12 to 18-month window to secure deals before rental rates gradually recover and incentives start to pull back,” Mr Smyrniotis said.
“It’s positive that a recovery has started but occupiers still have a lot of choice in fitted and unfitted space in a wide range of CBD buildings.”