APPD Market Report Article
PerthNovember 29, 2022
Andrew Ballantyne, Head of Research, Australia
Demand for Perth CBD offices on the up during 3Q22
- Headline vacancy in the Perth CBD decreased by 0.9 percentage points (ppts) to 19.3% in 3Q22, with quarterly net absorption totalling 16,200 sqm over the quarter.
- 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 3Q22. Occupier activity was predominantly led by tenants within the professional services sector.
Uptick in the short-term supply pipeline
- No significant office developments were completed in the Perth CBD over 3Q22. Nevertheless, the existing supply pipeline is elevated with four projects under construction, totalling 88,800 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 343,800 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 declined marginally (down 0.4%) in 3Q22. On the other hand, prime net effective rents in the West Perth office market increased by 0.8% over the quarter.
- Rising cost of debt pressures saw Perth CBD prime office yields decompress by 25 basis points (bps) in 3Q22 to a midpoint of 6.50%.
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.
- Office investment demand is expected to remain elevated, with several existing well-capitalised groups in the market seeking long WALE prime grade assets with a strong covenant as well as value-add opportunities.