This article is from the Australian Property Journal archive
ENERGY giant Chevron’s controversial planned Elizabeth Quay tower may exacerbate the oversupply problems in Perth’s office market for as long as decade.
According to BIS Oxford Economics, the proposed tower of at least 40,000 sqm would likely come online 2020 or 2021 and keep the city’s vacancy rate above 20% for another 10 years, and alone would add almost two percentage points to the forecast vacancy rate for 2020.
Chevron recently secured another development extension from the Metropolitan Redevelopment Authority for the 6,795 sqm site, on the corner of Barrack Street and The Esplanade, just weeks before its two-year extension to lodge development plans expired.
It acquired the site in late 2013 for $64 million and requested the lodgement period in October 2015.
BIS Oxford Economics senior project manager, Lee Walker, said the market would struggle to absorb the space vacated by Chevron.
“The problem for Perth is the weakness in office demand has further to run. And the market is already substantially oversupplied.
“Chevron may want its new office building at Elizabeth Quay to proceed, but the market won’t,” Walker said.
Demand for office space in Perth is believed to still be largely dependent on the resources investment, and BIS Oxford expects there is another two to three years left in the downturn in engineering construction, and that the next investment recovery will only emerge early next decade and “be much smaller than the last boom”.
“The weak investment outlook will lead to only modest net absorption of office space across the Perth metropolitan area between now and the end of the decade,” Walker said. “For the CBD, positive demand from tenants relocating from the suburbs (taking advantage of attractive lease deals) will be tempered by a number of government departments decentralising, leaving the vacancy rate sitting around 20% until the end of the decade.”
The backfill space created by Chevron moving to the potential tower at Elizabeth Quay would add almost 2% to the forecast vacancy rate for 2020, and would likely see increased competition amongst owners to secure and attract tenants, putting downward pressure office rents.
Savills managing director, Perth, Graham Postma said many tenants had seized the opportunity to upgrade the quality of their buildings and locations in response to the competitive terms on offer in the market.
He said tenants who had been forced to move from the CBD during Perth’s mining boom period, either due to cost or availability, had taken advantage of the current market conditions to recentralise back to the CBD.
Chevron’s Elizabeth Quay site – Lots 7 and 8 – is adjacent to the future site of Canadian group Brookfield’s dual-tower $650 million development that will include the city’s tallest building.
It will comprise a 52-level tower with 15,000 sqm of office space and a five-star hotel with as many as 220 rooms and another 220 high-end apartments, and another building with as much as 25,000 sqm of office space.
WA’s Barnett Government had committed an initial $440 million investment into developing the waterfront precinct.
Australian Property Journal
