Perth’s growth spurt con­tin­ues

Boom sees sin­gle- digit va­can­cies in the cap­i­tal, Louis White re­ports

The Weekend Australian - Review - - Landmarks -

PERTH’S of­fice tow­ers have the ‘‘ no va­cancy’’ sign out, with most of­fice space un­der con­struc­tion in the CBD leased be­fore it’s barely out of the ground. But not ev­ery­one is fore­cast­ing a pos­i­tive out­look for the coun­try’s fastest grow­ing econ­omy.

Frank Allen, West­pac di­rec­tor of prop­erty mar­kets, be­lieves com­mer­cial of­fice space in the Syd­ney CBD is a more sound in­vest­ment.

‘‘ I re­ally don’t be­lieve that the cy­cle has started in the Syd­ney CBD, whereas it is well into the growth cy­cle in Perth,’’ Allen says.

Syd­ney, and NSW, has a much broader base be­hind its eco­nomic growth while West­ern Aus­tralia re­lies on the min­ing sec­tor, he notes.

‘‘ I haven’t seen it yet, but if China can find some­one else to pro­vide their min­er­als more cheaply then WA could be in trou­ble,’’ he says. ‘‘ Still, there are 420 mil­lion rural Chi­nese mov­ing into the main­stream so the de­mand will be there for some time.’’

Allen also cites the fact that Perth has only twice had a sin­gle- digit of­fice va­cancy rate since 1992.

‘‘ We have al­ready started to see the yields drop ( in Perth) and it will be the dou­ble- digit growth in rents in the next few years that will pro­vide good re­turns,’’ he says.

Perth’s of­fice va­cancy rate was 0.7 per cent in July, the low­est recorded by the Prop­erty Coun­cil of Aus­tralia.

‘‘ It was only in Jan­uary 2005 that there were 13.5 per cent va­cancy rates and I am pre­dict­ing that by Jan­uary 2009 it will be back to around 6 per cent and back to dou­ble fig­ures of ap­prox­i­mately 10 per cent by 2011.’’

One in­vestor com­fort­able with the state of the Perth mar­ket is listed prop­erty funds man­age­ment and de­vel­op­ment com­pany Char­ter Hall.

‘‘ We are build­ing 21,000sq m of com­mer­cial of­fice space in Mounts Bay Road and an­other 11,000sq m in Stir­ling Street,’’ David Har­ri­son, joint man­ag­ing di­rec­tor of the Syd­ney- based com­pany, says. ‘‘ Both will be avail­able in 2009 and, while we haven’t re­leased any fig­ures yet, we are well ad­vanced in terms of leas­ing.’’

Har­ri­son is con­fi­dent the Perth CBD mar­ket will con­tinue on a strong path for a few years yet.

‘‘ We started in­vest­ing in Perth about 21/ years ago be­cause we could see what was hap­pen­ing.

‘‘ It takes a long time for a sub- 1 per cent va­cancy rate ( in some parts of the mar­ket) to get to 6- 7 per cent.

‘‘ We also see rents in­creas­ing sub­stan­tially as they vir­tu­ally haven’t moved in the past 10 years.’’

West­ern Aus­tralia leads the na­tion in pro­duc­tiv­ity, in­vest­ments and ex­ports, and with $ 23.3 bil­lion worth of projects un­der con­struc­tion and private and pub­lic in­vest­ment in in­fra­struc­ture es­ti­mated to reach $ 650 bil­lion over the next 20 years, there is no sign of it abat­ing. The Aus­tralian Bureau of Sta­tis­tics says growth in the June quar­ter was 3.2 per cent, well ahead of ev­ery other state.

A knock- on ef­fect

has

been

the growth in the cost of of­fice space, with pent- up de­mand not look­ing to ease un­til 2009 at the ear­li­est.

Vir­tu­ally all the space — about 240,000sq m — to be con­structed in the CBD has been leased.

Perth ten­ants don’t gen­er­ally com­mit to new of­fice space un­til they see the fin­ished build­ing.

But about 64 per cent of the 238,200sq m of space un­der con­struc­tion is al­ready pre- com­mit­ted, ac­cord­ing to Kathryn Matthews, Aus­trala­sia re­gional di­rec­tor of re­search and con­sult­ing for Jones Lang LaSalle.

Matthews has a far more bullish view of the fu­ture than West­pac’s Allen.

‘‘ We ex­pect the va­cancy rate to stay around 3 per cent for the next three years be­cause of the pent up de­mand, and for rents to surge past the $ 700/ sq m mark,’’ she says.

Col­liers In­ter­na­tional’s in­vest­ment sales di­rec­tor Ian Mickle agrees.

‘‘ I ex­pect there to be long- term growth in the com­mer­cial mar­ket,’’ he says. ‘‘ With the com­modi­ties boom con­tin­u­ing the mar­ket has come full cir­cle and A- grade rents in the city are at­tract­ing up to $ 700/ sq m, and pur­chas­ing of A- grade com­mer­cial prop­erty costs any­where be­tween $ 8,000-$ 11,000/ sq m. With no new sup­ply, rents will in­crease at least 10 per cent in the next 12 months.’’

Mickle says that al­though com­pa­nies are mov­ing into ar­eas such as West Perth or Su­bi­aco, there is a dan­ger of over­sup­ply in th­ese sub­urbs.

‘‘ I be­lieve that the ma­jor­ity of clients still want to be in the CBD, so that is where the fo­cus will re­main.’’ Sav­ills re­search an­a­lyst Alyson Marti­novich be­lieves the com­mer­cial mar­ket will grow for some years to come.

‘‘ The Perth of­fice mar­ket is well and truly in its growth cy­cle,’’ Marti­novich says. ‘‘ A grade rents are rang­ing be­tween $ 500/ sq m to $ 660/ sq m, with the av­er­age be­ing $ 580/ sq m, and they will con­tinue to in­crease un­til 2009.’’

Yields for A grade prop­er­ties are be­tween 6- 7.25 per cent, with com­mer­cial space sell­ing for as high as $ 11,000/ sq m.

‘‘ There is very lit­tle to rent at the mo­ment.’’

Marti­novich says the de­mand has been build­ing for some time. ‘‘ Whilst white col­lar em­ploy­ment growth has a strong cor­re­la­tion to net ab­sorp­tion ( of of­fice space), it does not ac­count for the pent- up de­mand within the Perth mar­ket.

The de­mand has been cre­ated by ten­ants be­ing forced to re- en­gi­neer their ex­ist­ing premises to ac­com­mo­date staff growth be­cause there is a lack of avail­able of­fice space in the mar­ket.

Sav­ills notes that there were around $ 835 mil­lion worth of of­fice prop­erty trans­ac­tions in the year to June 2007, dou­ble the pre­vi­ous year.

Cap­i­tal works:

Perth’s of­fice va­cancy rate dropped to 0.7 per cent in July, the low­est ever recorded by the Prop­erty Coun­cil of Aus­tralia

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