Perth office market moves on from horror 2015
Perth’s office market is already seeing more action this year than in all of 2015, in a positive sign for the city’s maligned commercial prospects.
Research from commercial agency Knight Frank shows Australia’s western hub already has four major CBD office sales in the pipeline, eclipsing the three deals the city recorded for the entire 12 months to December.
The deals, which will be finalised in the coming months, total $450 million and include Chinese mainland group YT International’s purchase of 219-221 St Georges Terrace, better known as the Forrest Centre.
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West Australian-based syndicator Primewest is in the final stages of buying a half stake in the Exchange Plaza office tower for about $113.5 million, while Eastpoint Plaza is under contract at $52 million and 81 St Georges Terrace is set to change hands for more than $80 million.
Knight Frank research analyst Sonia Grewal says in the Perth CBD Office Market Overview that while Perth’s office market has been down for some time after the mining boom peak in 2012, signs of life are beginning to emerge.
The demand for prime grade space has allowed a slight lift in achieved rents at the start of 2016
“This increased interest in office investments in the Perth CBD in late 2015 has continued into 2016,” Grewal says.
“Investors entering the market may face challenges in the short term but when looking at the bigger picture will be able to ride out the current market conditions and benefit from the cyclical challenges.”
Perth’s office market is continuing the long road back to its 2012 boom levels.
Grewal says investment yields have stabilised, with prime core yields now hovering between 7% and 8%, and secondary core yields between 8% and 8.75%.
Though it’s still a tenant’s market, the report suggests some landlords are securing more favourable deals as tenants choose the current climate as the best time to upgrade their headquarters.
This increased interest in office investments in the Perth CBD in late 2015 has continued into 2016
“Incentives have continued to increase throughout 2014 and 2015 and are sitting at 45% to 50% of lease terms across all grades. Secondary grade net face rents reached a peak of $616 per square metre in July 2012 and have since steadily declined to just under $400 per square metre ($219 per square metre net effective) currently,” she says.
“The demand for prime grade space has allowed a slight lift in achieved rents at the start of 2016 as tenants are taking advantage of incentive levels and relocating to better quality office space.”
Despite the cautious optimism surrounding the Perth market, CBD office vacancy rates continue to climb, with 19.2% of offices listed as vacant in January, compared with 16.5% in July last year.
“Vacant office space in the CBD has increased year on year for four years from a low of 47,863 square metres in January 2012 to 333,993 square metres,” the report says.
