Business confidence re-emerging

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Published:: 03 Feb 2010

Author:: Joe Lenzo

Source:: Property Council of Australia

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Market Analysis & Commentary

Property Council figures highlight renewed business confidence in Western Australia brought on by major resource projects, with tenants confident in the outlook for the West Australian economy driving positive demand in the Perth CBD and West Perth office markets for the first time since July 2008.

The Property Council's Office Market Report shows Perth CBD vacancy increased slightly from 8 percent (109,170sqm) in July 2009 to 8.2 percent (112,739sqm) in the six months to January 2010 as a result of further new supply.

Key market indicators, Perth CBD January 2010

table 101 omr perth cbd

Despite the vacancy rate increase there was a return to positive net absorption, 4,541sqm, over the reporting period. In context, the current vacancy rate is still below Perth’s 15-year historical vacancy rate of 10 percent.

Property Council WA Executive Director Joe Lenzo said: “Business decisions driven by fear, that were prevalent in early 2009, are gone. Businesses are no longer worried about survival."

"Over the past six months a majority of Perth tenants have remained in limbo, unsure whether worse is still to come or WA is heading towards a second boom. As we enter the early weeks of 2010, it is clear that most companies are preparing for future growth; expansion plans are being dusted off, unemployment is trending down and sub-lease opportunities have peaked."

"Reduced rents, full floor vacancies and a pick up in business confidence have seen the number of leasing enquiries increase in the past three months."

"While the typical enquiry has been from small professional services firms seeking space under 1000sqm, large space users are starting to return to the market as new and delayed mining and infrastructure projects start to gear up."

"This trend is already shown by BHP Billiton’s 6000sqm commitment to lease 1 Mill Street, vacated by Rio Tinto. On this basis, while we expect a continued rise in the vacancy rate as further supply is added in 2010, future increases in the vacancy rate will be below the increase experienced in 2009.”

“From recent leasing enquiries, tenants are very price sensitive with efficient floorplates and existing fitouts of secondary concern. There has also been a focus on maintaining flexibility in accommodation options with many tenants favouring shorter lease terms.”

Of the 241,700sqm of space still forecast to enter the CBD during the current construction cycle (2009-12), 71.5 percent is already pre-committed. Upon completion, these projects will increase the size of the Perth CBD office market by 18 percent.

New projects currently being completed include:

City Square (71,000sqm) developer Brookfield Multiplex. BHP Billiton has pre-committed to 60,000sqm
Raine Square (42,500sqm) developer Saracen Properties. Building is fully pre-committed to BankWest
140 William St (36,000sqm) developer Cbus. The State Government has pre-committed to 22,000sqm
Alluvion (22,417sqm) developer Cape Bouvard/Charter Hall. Fully pre-committed, primarily to Clough
Dynons Plaza (13,178sqm) developer Stamford Group. Building is fully pre-committed to Chevron.

Key market indicators, West Perth January 2010

table 101 omr west perth

In Perth’s other main commercial office market, West Perth, the vacancy rate remained at 6.1 percent (23,577sqm) over the half-year to January 2010.

Other than smaller mining tenants closing, a number of West Perth tenants moved to cheaper office accommodation in Perth suburbs.

“Current market conditions in West Perth have led to tenants moving to emerging fringe office areas such as Subiaco, Herdsman, Belmont and North Perth. Police and Nurses Credit Society, BDO, iiNet, and Mirvac have all moved to new buildings in Perth’s suburbs within the last six months,” said Mr Lenzo.

A further 20,540sqm of stock is scheduled to come on-line in the current cycle, up to 2012. Based on the historical vacancy rate and pre-commitment rates, this space will not be sufficient to meet West Perth tenants’ demands and will lead to further developments in Perth’s inner suburbs.

Snapshot

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