APPD Market Report Article
PerthAugust 26, 2022
Andrew Ballantyne, Head of Research, Australia
Perth CBD office demand conditions on the up during 2Q22
- Headline vacancy in the Perth CBD increased by 0.4 percentage points (ppts) to 20.1%, despite quarterly net absorption totalling 2,700 sqm due to refurbished stock brought back online.
- The centralisation of tenants from outer suburban markets as well as new business entrants into the Perth market were significant contributors to net absorption over 2Q22. Occupier activity was predominantly led by tenants within the professional services sector.
An uptick in the short-term supply pipeline
- The reintroduction of refurbished stock (13,174 sqm at 190 Hay Street) was the only supply addition in 2Q22. Construction works continue at Chevron HQ (54,000 sqm) which is 96.3% pre-committed. Additionally, three other speculative developments, totalling 34,800 sqm, are under construction.
- 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 13 projects in the CBD, totalling 357,400 sqm. Proposed new office projects are likely to require substantial pre-commitment to proceed.
High incentives continue to limit effective rental growth
- Prime net effective rents in the Perth CBD office market recorded a marginal increase of 0.1% in 2Q22, led by a mild increase in net face rents. Prime net effective rents were unchanged in the West Perth office market over the quarter.
- Prime yields continue to hold steady in both Perth markets over the quarter, with the CBD prime yield range remaining at 5.00%-7.50% and West Perth at 6.75%-7.75%.
Outlook: Prime grade office investment demand to remain robust
- WA’s economic growth has continued to outperform the national average, driven by ongoing strength within the resources sector. With a strong pipeline of resources projects approved, demand for office space is likely to be led by the mining and professional services sector.
- Prime yields are expected to remain close to current levels in 2H22. Several well capitalised groups exist in the market seeking long WALE assets with a strong covenant as well as value-add opportunities. The recent reopening of the WA border is expected to benefit the office market, with an expected increased pool of investors looking to capitalise on investment opportunities.