How would you characterise your market at the moment?
There is significant demand for space at the moment, with large requirements from national tenants. Companies associated with the resource sector dominated demand in 2011, and this trend is likely to continue. Most of the major enquiries for space are from iron ore, oil and gas, engineering and construction groups. With record levels of resource expenditure planned in WA, demand for office space from these companies is unlikely to slow in the short to medium term.
2011 recorded the highest ever net absorption of 109,400 sqm. This is almost five times the 40 year annual average of 22,500 sqm. The Perth CBD accounted for 30% of Australia’s 2011 net absorption in 2012 despite the Perth CBD representing only 6% of national stock.
Supply is a big issue and it is unlikely that we will see any major completions until 2014, after construction of existing projects finish in early this year. So essentially there will be a two year period where there will be no more space to absorb. Demand for office space continues to extend beyond the CBD with West Perth vacancy falling to 2.8% making it the second tightest major market in Australia.
Are there any trends you are noticing among the tenants you are talking to?
Larger tenants and their advisors are focussed primarily on securing space quickly rather than drawing out negotiations, especially as there are usually several parties considering the same premises.
What do you think will be the biggest influence on your market in Q1?
Continued resource sector activity and limited supply will be the biggest influencers.
What will rents and incentives do in Q1?
The high level of demand and lack of vacant space will see rents continue to increase. Prime Gross effective rents increased by 20.5% in 2011 with prime gross rents now averaging $856 per sqm pa. Incentives will also continue to fall and now range from 5-10% of net rent. Pre-commitment development may see slightly higher incentives.
What should landlords do to adapt to these market conditions?
Landlords should monitor the market very closely to keep track of rapidly improving terms and conditions. The Perth market is in a strong position with a very positive outlook for commercial landlords and developers.
Nick Van Helden
Director, Office Leasing, Western Australia
Recent Leasing Deals
Download a PDF of the Perth Q411 Market Overview