This article is from the Australian Property Journal archive
THE gap between vacant and occupied office space in the Perth CBD has widened over the past 18 months, according to Knight Frank, while landlords would be pleased about the city’s rental growth prospects in the medium term.
Knight Frank’s September Perth Office Market Report says the gap between space currently deemed vacant – unoccupied – by the Property Council, and space actually available for lease – advertised – has widened, with the “CBD leasing market looking much healthier than some figures would suggest”.
In its July Office Market report, the Property Council had Perth vacancies down slightly to 18.4%. However, Knight Franks says the current advertised levels sit at around 15.4% for the core CBD and providing an indication of where vacancy figures may be heading.
The outlook is grimmer for the area east of Victoria Ave, where the vacancy rate is almost double at 31%. Fringe areas north of the railway line, in the Northbridge and Stirling precincts, have a 17% vacancy rate.
CityLink is the only precinct with a sub-10% vacancy rate.
Major recent leasing deals include Worley taking up 10,706 sqm at 240 St Georges Tce; St John of God leasing 5,232 sqm at 556 Wellington St; WeWork signing up for 3,414 sqm at 45 Francis St, and the Minister for works taking 10-year leases on St George Tce of 3,222 sqm at number 55 and 3,077 sqm at number 32.
Chevron renewed its lease of 14,699 sqm 256 St Georges Tce, ahead of its move into a new $360 million office tower at Elizabeth Quay, expected in 2023, while Rio Tinto renewed a lease over 6,784 sqm at 95 William St.
Knight Frank’s Ian Edwards said the gap was mainly due to the fact that Property Council statistics dealt primarily with occupied space, whereas there was an increasing amount of space that had been leased but not yet occupied by tenants coming into the CBD.
He said there was a significant amount of leasing activity in the current market that was not yet reflected in official figures, and that the market had rebounded strongly in the last six months and net effective rents are 9.5% higher than this time last year, now at $328 per sqm. Knight Frank’s forecasting model projects prime net effective rental growth of 36% to the end of 2023.
Secondary net effective rents have increased 2.7% over 12 months to $187 per sqm.
“With tight availability in premium and upper A-grade buildings, net absorption is shifting to secondary buildings where we will also start to see falls in incentives and gradual increases in rent,” Edwards said.
While still very high, incentives have eased to 45.0% for prime spaces, and to 51.8% for secondary stock.
Knight Frank senior analyst, Nicholas Locke said the CBD office market was also looking much stronger from a sales perspective. Sales could reach in excess of $1.1 billion for the 2019 calendar year, the highest level since 2013.
Centuria Metropolitan REIT last week announced it had bought William Square, at 45 Francis in Northbridge, for $189.5 million on a cap rate of 6.4%.
Locke said the improving occupancy levels, prospects of a sustained run of rental growth, and a tightening in yields was particularly rewarding for those counter-cyclical investors who entered the market over the last two to three years.
Buildings sold above $10 million in 2017 and 2018 averaged vacancy rates over 32%, but now they are less than half at 16% and still declining.
