APPD Market Report Article

Perth

May 26, 2024

Andrew Ballantyne, Head of Research, Australia

2.0%

AUD 462

Rents
Rising

Perth CBD office demand conditions soften over the quarter

  • Headline vacancy in the Perth CBD increased 0.3 percentage points (ppts) to 15.8% in Q1 2024, with net absorption totalling -1,300 sqm over the quarter. This was driven by the completion of refurbishment office stock in Q1 2024.
  • Despite the negative quarterly net absorption reading, demand for office space has been robust over the last 12 months. Net absorption over the 12 months to Q1 2024 totalled 14,000 sqm, versus the 10-year annual average of 8,600 sqm.

A continuing uptick in confirmed development activity

  • One significant office refurbishment completed in the Perth CBD over Q1 2024, totalling 4,280 sqm. The existing supply pipeline is elevated with four projects under construction totalling 125,700 sqm.
  • Other than developments currently under construction, the supply pipeline for both the Perth CBD and West Perth office market remains limited given elevated vacancy rates. Plans are approved for a further 12 projects in the CBD, totalling 258,600 sqm. Proposed new office projects are likely to require substantial pre-commitment to proceed.

Perth CBD office rents increase

  • Perth CBD prime net effective rents increased to AUD 283 per sqm per annum (0.4% q-o-q), with y-o-y growth of 2.7%. Prime net face rents increased 0.5% q-o-q to AUD 654 per sqm per annum, reflecting y-o-y growth of 2.6%.
  • The stabilising cost of debt environment saw Perth CBD prime office yields hold steady in Q1 2024 at a mid-point of 7.13%. On an annual basis, prime office yields recorded a softening of 25 basis points.

Outlook: Robust WA economic conditions support demand for space

  • WA’s economic growth has continued to outperform the national average, with y-o-y population growth recorded at 3.3% versus the national average of 2.5% as at September 2023. Perth CBD white-collar employment growth is expected to grow in line with forecast population trends.
  • With inflationary pressures and borrowing costs stabilising, the attractiveness of office assets to buyers is expected to improve in 2024. However, investors are likely to still be selective in terms of potential acquisitions, as both buyers and vendors continue to undergo price discovery.

Note: Perth Office refers to Perth's CBD office market (all grades).

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