Western Australia 2020 property market outlook: Savills

Western Australia 2020 property market outlook: Savills

10 January 2020

Savills’ recently provided a 2020 property market outlook for each state in Australia. Here’s a summary of predictions for WA.

Capital Transactions

According to Nick Charlton, Director of Capital Transactions at Savills Australia, 2019 has been a strong year for vendors, with a number of campaigns setting new benchmarks.

“Investor interest continues to be strong with competition being seen from east coast based fund managers, institutions, and offshore capital, in particular from Singapore,” he said. “The most pleasing aspect in the campaigns we have run has been the depth of bidding which has driven strong outcomes for our vendors.”

“We anticipate further yield compression in the coming 12 months, driven by the decreasing cost of capital and forecasted net effective rental growth. Investor demand will continue to be strong, driven by the ongoing yield differential and capital value premium seen between Perth and the east coast capital cities. Perth, when compared on a regional basis, offers compelling returns that are substantially higher than the majority of gateway cities across the Asia Pacific region.”

Retail Investments

Chris Ireland, Director of Retail Investments at Savills Australia said retail leasing over the past year has been challenging in the sub-regional centre category, in particular on the leasing of vacancies and renewals, given retail sales turnover for specialty stores has been relatively consistent with 2018 figures highlighting minimum growth.

Consumer confidence in spending and also the level of incentives being requested by retailers has been slowing deal turnover and progress.

Retail & Commercial Sales

“Neighbourhood shopping centres anchored by a Coles or Woolworths supermarket continued to display their resilience as an investment of choice among buyers in 2019,” explained Barney Dear, Associate Director of Commercial & Retail Sales at Savills Australia. “Annual 2.7% growth in supermarket spending in WA, the non-discretionary nature of specialty tenants in neighbourhood centres, coupled with the increasing demand for quality food and beverage offerings all contributed to the success of these centres, fueling buyer engagement.”

“Looking forward to 2020, we foresee continued demand for these centres. The low cost of borrowing will further encourage syndicators to participate in the sector and we believe yields and transaction volumes will remain steady for the next 12 months.”

Industrial & Logistics

According to Matthew Hopkins, Director of Industrial & Logistics at Savills Australia, the resilience of the Perth industrial market since the downturn five years ago has been impressive. Vacancy levels for modern well-located stock have remained in the 5-15% range and capital prices for this same stock have been largely held up due to yield compression across the asset sector, as well as the tightly held nature of the Perth industrial market. That said, rents have compressed during that same period and secondary stock has been more substantially impacted both in terms of rents and vacancy.

“2019 has continued to be challenging, but for the first time since the downturn, we have seen a positive change in sentiment and a general improvement in levels of lease enquiry,” said Mr Hopkins. “Workshop enquiry in particular has seen a strong resurgence this year and we are expecting that to translate into a strong level of take up for good quality workshop buildings into 2020.”

Office Leasing

According to Graham Postma, National Head of Office Leasing at Savills Australia, the Perth Office Leasing Market continues on its recovery path. The key trends of 2019, ‘Flight to Quality’ and ‘recentralisation’ back to the CBD, are continuing to provide positive absorption for the CBD. 

Buildings such as 240 St Georges Terrace, Kings Square and 140 St Georges Terrace were arguably the biggest beneficiaries of these trends for 2019, either achieving or approaching 100% committed status during 2019.

“The declining vacancy within the prime market is now translating into effective rental growth as landlords look to reduce incentives as occupancy levels within their assets reach for better key market metrics,” said Mr Bobridge. “Buildings with larger contiguous vacancies are also facing less competition as opportunities diminish, which should provide for the opportunity to improve terms over the course of 2020.”

“The co-working sector has had a strong impact in 2019 with both expansion of existing players and significant new entrants opening in Perth.

WeWork’s commitment to over 11,000sqm at Central Park and William Square, and Spaces to a further 3,000sqm in The Wentworth Building were the most notable.”