APPD Market Report Article
PerthDecember 1, 2021
Perth CBD office demand conditions relatively neutral over 3Q21
- Headline vacancy in the Perth CBD decreased 0.6 percentage points (ppts) to 19.1%, despite net absorption of -110 sqm over 3Q21. 905 Hay Street (13,200 sqm) was withdrawn for a full-building refurbishment over the quarter, which was a contributing factor to the decrease in the overall vacancy rate.
- Despite the negative reading in net absorption, tenant activity from the professional services and mining sectors picked up significantly over the quarter due to project space requirements. Leasing activity was also boosted by centralisation of tenants to the CBD. The WA State Government remains an active player in the market as it continues to review its office space requirements.
The supply pipeline remains subdued
- No significant office developments were completed in the Perth CBD over 3Q21. Construction works continued at Chevron HQ (54,000 sqm) and Capital Square Tower 2 (25,200 sqm). Both developments have significant levels of pre-commitment (Chevron HQ is 96.3% pre-committed while Capital Square Tower 2 is 53.2% pre-committed).
- 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 303,200 sqm. Proposed new office projects are likely to require substantial pre-commitment to proceed.
High incentives limits effective rental growth
- Prime net effective rents in the Perth CBD increased marginally over the quarter, up 0.1% while rents in West Perth recorded no change in 3Q21. Prime incentives were unchanged in both markets in 3Q21, remaining at 48.9% in the Perth CBD and 37.3% in West Perth.
- 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: Yields are anticipated to compress over the next 12 months
- The WA resources industry has remained resilient through the COVID-19 pandemic, providing support to economic conditions. 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 compress over the next 12 months. Several well capitalised groups exist in the market seeking long WALE assets with a strong covenant. However, opportunities are limited which may result in lower transaction volumes.