Australia
Perth CBD, city-fringe office markets race to strong finish

Perth CBD, city-fringe office markets race to strong finish

Asian capital has continued its aggressive infiltration into Perth’s A Grade commercial property market throughout 2018, with prime yields sitting on par with pre-Global Financial Crisis levels.

Savills Perth has brokered several significant deals and witnessed a number of new trends emerging, with the $125.25 million transaction of WorkZone West setting the bar high in the first half of the year.

Increased interest in CBD and city-fringe assets

2018’s deals demonstrate the volume of investors showing an interest in CBD and city-fringe assets, and that there has been a considerable uptick in the past 12 months from interstate and Asian investors. 

The Exchange Tower at 2 The Esplanade recently settled and was rumoured to have fetched $326 million, a remarkable turn for the Perth CBD office market, with three suspected bidders looking to secure 100 percent interest in the full asset. 

836 Wellington Street was contracted for $91.33 million and underpins the appetite for long-dated secure income-producing assets.

Yet to be contracted but under offer is 76 Kings Park Road, a West Perth property that saw several rounds of bidding, highlighting the pent-up demand for the city-fringe office market.

Counter cyclical investment trends

The strong interest in assets valued at more than $200 million illustrate Perth’s popularity with counter-cyclical investors who are fully engaged with the recovery being seen in the occupational leasing market. 

In previous cycles, it has typically been difficult to trade assets in this segment of the market.

The depth of bidding on the Exchange Tower exemplifies the popularity of premium and high-quality A Grade assets being experienced in 2018 among these investor groups.

Perth continues to experience a “flight to quality phenomenon”, creating a two-speed market, with vacancy rates down to 4.1 percent in the premium sector of the market.

Biggest changes in the market

The lack of quality contiguous floorplates is resulting in a lack of choice for large space requirements.

This year, Chevron confirmed it will move its operations to Elizabeth Quay, which we believe will positively influence the entire precinct. 

Similarly, we’ve witnessed a resurgence of investment from the major mining groups, and the knock-on effect this will have for space requirements in the coming three to five years will drive office demand.

2019 predictions

Looking to 2019, we expect an increase in transaction volume, as more investors seek to take advantage of positive recovery in the Perth office market. 

Strong interest from east coast and offshore buyers will remain, as the lack of stock in Sydney, combined with Perth’s attractive yields and strong recovery in occupancy rates, prove attractive.

A reduction in yield spreads and capital value premiums between the Perth and Sydney markets is anticipated, as the Sydney market cools.

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The team at Savills are experts in their respective fields, with extensive experience backed by 150 years of Savills industry knowledge. This makes us well placed to provide you with the most informed view of current trends as well as helpful guides and top tips across the commercial and residential property sectors.

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