Things looking up for Perth’s office market

Results from the latest Property Council Office Market Report show that Perth experienced the largest decrease in vacancy of any Australian capital city.

The Perth CBD office vacancy rate dropped from 22.5% to 21.1% in the six months to July 2017.

Speaking at the Office Market Report industry breakfast Shelley Ritter, Savills said:

“Savills has modelled various scenarios based on differing net absorption figures over the next three years. Our view is that positive net absorption could sit above our historical average for the past seven years, at around 25,000 square metres per annum. This may result in the technical vacancy rate falling to around 17 per cent by 2020.

“We may see vacancy fluctuate due to Capital Square coming on line and Woodside relocating from 240 St Georges Terrace. It is important to note that all stock, including 240 St Georges Terrace, is now competing for tenants in the market. We have started to see that pricing indicators have stabilised and it is our view that there is limited correction left. “Flight to quality” may see the upper end of the market start to pull back on incentives, however, this will occur on a building by building basis. A continuing “flight to quality” will maintain a two-tiered market, with the delta between Prime and Secondary stock likely to increase in the short term.”

Addressing the crowd of 300 property professionals, Shelley Ritter outlined three possible scenarios.

The first, was a best-case scenario, showing a seedy recovery of 10.4% vacancy by July 2020, the least likely, although not unprecedented for WA.

The second scenario predicted vacancy rates would decrease to 14.6% by 2020, while the most conservative estimate put the vacancy rate at 18.8% by July 2020.

When quizzed, the industry panel had differing views as to which of the three would eventuate.

However, the majority felt like Perth could bounce back to somewhere between 18.8% and 14.6% by 2020, due to limited new supply in the pipeline.

Overall, sentiment is rising which has been echoed by these positive results. It appears the worst may be over for WA’s commercial property market.