Perth office market back in the black

Perth office market back in the black

12 July 2019

Perth’s CBD office market has returned to positive territory, with rents growing for the first time since 2013 amid consecutive vacancy declines over the past two years.

That is one of the key findings from CBRE’s Q2 Office MarketView Snapshot, which highlighted prime face rents in Perth’s CBD office market lifted 1.1% during the second quarter of 2019. In tandem, prime incentives have trended down since the third quarter of 2018 – contributing to 10.2% net effective rental growth over the past 12 months.

CBRE’s Head of Research, Australia, Bradley Speers said the most recent figures highlighted Perth’s return to positive territory.

 

“At the beginning of the year we anticipated that in 2019 Perth would lead the nation in terms of prime CBD net effective rental growth. That scenario is indeed playing out and we expect the market will record net effective rental growth of around 15% this year,” Mr Speers said.

CBRE’s head of Perth office leasing, Andrew Denny, said the premium and A-grade areas of Perth’s CBD office market were showing the strongest signs of recovery.

“Over the past 18 months, there has been a notable shift in sentiment, with a significant upturn in the number of both expanding and new tenants in the Perth CBD. Specifically, the premium and A-grade parts of the market are the standout performers, with face rents increasing across seven buildings – mainly A-grade – over the past eight months,” Mr Denny explained.

“After the resources sector, the CBD office market is now one of the strongest performing areas of the WA economy.”

Consecutive falls in vacancy rates have been the catalyst for improvement in Perth’s CBD office markets, Mr Denny added.

“After peaking at 22.5% in January 2017, vacancy has fallen consecutively over the past two years. This is anticipated to continue throughout 2019, with a greater spread emerging between the premium end of the market compared to lower grades of accommodation,” he said.

“We expect the July 2019 CBD vacancy rate to be below 18%, with continuing steady, but modest, falls in vacancy moving forward.”

Looking ahead, Mr Denny said while upward momentum would continue to build in the market, growth would be relative to the current cycle.

“The market is headed in a positive direction, albeit, we are not anticipating large, quick changes. Although the latest figures reflect high effective rental growth changes over the next three years – the strongest nationally – the base was very low to start with.”

The report also highlighted the performance of Australia’s major office markets during the quarter:

  • Melbourne prime CBD office rents increased 3% over the second quarter of 2019 – growing 5% year to date. During the same period, incentives ticked down but remain at 27% despite extremely low vacancy.
  • Sydney, Brisbane and Adelaide prime CBD office markets recorded growth over the quarter of 1.2%. 1% and 0.5% respectively.
  • Rents in Canberra were flat during the quarter.
  • Yields were static in most markets over the quarter, exceptions being Perth and Canberra where prime CBD office yields compressed 15 basis points and 23 basis points respectively.