Perth’s growth spurt continues
Boom sees single- digit vacancies in the capital, Louis White reports
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
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.
Perth’s office vacancy rate dropped to 0.7 per cent in July, the lowest ever recorded by the Property Council of Australia