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News

12 Dec
Perth office vacancy rate: improvement, or swings and roundabouts?

With Lisa Seun, Director

Could the end be in sight for our record high CBD office vacancy rate? Clues are slight, but there may be room for cautious optimism: for four consecutive quarters we have recorded a fall in the vacancy rate including a 0.9% improvement in the third quarter.

Swings

Closer analysis reveals the upticks have been recorded in the prime grade vacancy rate which has now fallen for six consecutive quarters. The needle for the overall vacancy rate was 21.8% in August, and we expect to see this move closer to 20% when the new statistics are released in early 2018.  In essence, we are witnessing a two-speed market. Most of the absorption of office space is occurring at the top end in a continuing “flight to quality” and also some significant relocations from the fringe to the CBD to take advantage of the incentives on offer. The vacancy rates in lower building grades is proving more stubborn.

Some industry commentators have suggested we might begin to see the end of CBD rental incentives in 2018, but ACORPP believes that’s unlikely while vacancy pressures are maintained on rent. Another factor is a one-eyed focus on new leasing while there is plenty of vacant space to be backfilled. That scenario is best examined in a survey of mooted office movement. A number of big names – in the private and public sectors - are said to be looking for new space.

Those that have been bandied about include FMG, CBH, Chevron and Clayton Utz along with the federal government department of Human Service and other agencies. Their combined needs are said to add up to more than 100,000 square metres. But wherever they move to will leave backfill in an environment of high vacancy rates. And there will be more of the same when Woodside moves to its new head office.  As far as the market is concerned, it really is a case of swings and roundabout writ large.

So: where to from here? While the market is showing signs of improvement, don’t believe the hype. We encourage tenants to continue to negotiate firmly on both face rents and incentives, because fundamentally, the vacancy rate is still high and is not expected to make a sharp comeback in 2018.

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