Perth CBD office demand conditions on the up

• Headline vacancy in the Perth CBD decreased by 1.4 percentage points (ppts) to 18.5%, with quarterly net absorption totalling 18,800 sqm over the quarter, marking the seventh consecutive quarter of positive net demand.
• Expansionary activity as well as new business entrants into the Perth market were significant contributors to net absorption over the quarter. Occupier activity was predominantly led by tenants within the mining and professional services sectors.

An uptick in new office supply

• No significant office developments completed in the Perth CBD in the quarter. Nevertheless, the existing supply pipeline is elevated with four projects under construction totalling 67,000 sqm.
• Other than developments currently under construction, the supply pipeline for both the Perth CBD and West Perth office market remained limited given elevated vacancy rates. Plans have been approved for a further 11 projects in the CBD, totalling 276,000 sqm. Proposed new office projects are likely to require substantial pre-commitment to proceed.

Perth CBD office rents broadly stable

• Perth CBD prime net effective rents decreased to AUD 274 per sqm per annum (-0.6% q-o-q), however with y-o-y growth of 0.8%. Prime net face rents increased (0.1% q-o-q) to AUD 638 per sqm per annum, reflecting y-o-y growth of 1.7%.
• Rising cost of debt pressures saw Perth CBD prime office yields decompress by 25 basis points (bps) in the quarter to a midpoint of 7.13%.

Outlook: Robust WA economy to support demand for office space

• 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.
• Economic instability from factors such as inflationary pressures and rising borrowing costs will continue to reduce the attractiveness of office assets to buyers relying on leveraged capital sources. Investors are likely to be selective in terms of potential acquisitions as both buyers and vendors undergo a price discovery phase amongst shifting economic conditions.