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Office vacancies in the Perth CBD have fallen to the lowest level in six years, with a resurgence in the conjugal mining industry leading the way.
The mining industry accounts for more than a third of the office space in Perth, as evidenced by the signs for Woodside, South 32, Rio Tinto, and BHP as you approach.
In many respects, Perth’s office market is subject to the vagaries of the mining industry.
“That’s exactly what we’ve seen in the last six months, with strong demand coming through from resources, mining, engineering, and construction,” CBRE Asia Pacific director of advisory & transaction services office leasing James Phelan said at a recent Property Council event.
“It’s clearly been a turbulent time for office markets nationally, but in Perth, there is definitely light at the end of the tunnel.”
Since January 2020, about 70 to 75 new leasing deals have occurred, with the majority coming from the mining, engineering and resources sector, CBRE data shows.
According to research from the Property Council’s Office Market Report, the Perth CBD office vacancy rate has dropped to 16.8 per cent, its lowest level since 2015.
The office vacancy rate in West Perth has also improved to 19.1 per cent, a three per cent fall from January.
While improving, the numbers are still the highest in the country, with the average CBD vacancy rate sitting at 11.2 per cent.
Mr Phelan said 32 per cent of the 3.1 per cent fall in CBD vacancy rates was due to positive absorption, with 55 per cent from temporary building withdraws, and the remaining from permanent withdrawals.
“The Perth CBD office environment is now the fastest-moving market in the country and the Perth market is intrinsically linked with mining,” he said. “So when the mining sector starts to hum, the demand for Perth often follows.
“Obviously, we’ve had major adverse economic events, but for the Perth office market, it really has just been a bump in the road. Today’s vacancy rate is a continuation of a longer-term downward trend we’ve seen since 2016.”
Two mining companies, Gold Fields and Micromine both relocated their Perth businesses to St Georges Terrace the CBD this year is an example of the demand, taking up a total of 5500 square metres as Chevron’s new headquarters continues construction in Elizabeth Quay.
Mr Phelan said while Perth still has the highest CBD vacancy rate in the county, it is worth remembering that Perth is a smaller and more volatile market.
“It also has the highest proportion of C and D grade stock in the country, so it’s always likely to be artificially higher than the more mature markets like Sydney and Melbourne,” he said.
The Perth market has had a positive six months, according to CBRE senior director of office leasing Andrew Denny, with large vacancy decreases and genuine tenant demand, with many firms expanding as a result of the booming mining sector.
“Project space requirements have returned to the market for the first time since 2012,” he said.
“Sublease availability is minimal at 35,000sqm, representing just 1.9 per cent of the total CBD stock, and fell for the first time since March 2020 during Q2.
“Moving forward, we expect buoyant economic conditions to continue to drive positive tenant demand. This will enable the market to absorb the modest new supply coming online in the next two years, with vacancy rates expected to fall until 2024, when significant backfill space will enter the market.”
Mr Phelen is particularly interested in the potential that in the next cycle, developments may be triggered by commitments as low as 20 to 30 per cent.
“Or we may even see a speculative development, which would be the first for the CBD,” he said.
Mr Phelan said CBRE had been involved in five rent increases recently and said Perth should see effective growth between 10 and 15 per cent by the end of 2023.
“Our advice would be if you have a modern building, with spec fit-outs and proven track record of transactions in the last 12 months, there’s definitely scope to increase your rents,” he said.
Property Council WA executive director Sandra Brewer said the new results showed good momentum for the market and WA economy but called for the government to get on the front foot to get the city into top gear.
“Immediate support measures to encourage higher CBD visitation such as free or heavily discounted public transport and reduced pressure on parking costs, will ensure the early signs of improvement translate into strong post-COVID city activity,” she said.
