Perth’s office leasing market will continue to see tenants take advantage of favourable leasing conditions. We expect the two-tiered market of 2018 to transfer into 2019.
There are a number of large space requirements currently in the market including the Western Australian Police Force for 25,000sq m, FMG for 12,000sq m, and ConocoPhillips for 10,000sq m, which holds the potential to drive the headline vacancy rate below 19 percent for the first time since 2015.
The battle for contiguous space
Higher quality assets have been the beneficiary in the market, with no contiguous space options currently available above 10,000sq m in prime-grade stock, due to strong take-up.
Finding contiguous space is becoming difficult for firms coming to market and seeking space of 5,000 to 10,000sq m, with only a handful of properties able to cater to this demand.
Perth’s largest landlord Brookfield is progressing with its developments being the 52,000sq m Chevron tower in Elizabeth Quay, with timing for 2023, the Plus Tower complex also at Elizabeth Quay and the Esplanade Busport redevelopment. These developments reflect the growing positive sentiment in the Perth market.
Premium office space
Premium office space is operating differently to the wider CBD market however, with vacancy dropping to 4.1 percent in June 2018, from 11.7 percent the year prior.
Incentives are tapering back to reflect this reduction in vacancy, offering a slight increase in effective rental growth for landlords.
Leasing success at 240 Georges Terrace highlights the demand for high-quality space, with deals to Macquarie Bank for 3,311sq m, Wood Group for 9,198sq m, CBH Group for 3,790sq m, Iluka Resources for 3,238sq m, and HWL Ebsworth for 2,477sq m. Total leased space within the former home of Woodside is now approximately 22,870sq m.
Looking forward, an uptick in business investment and a more confident outlook for the mining sector is supporting job growth throughout Western Australia, with BHP, Rio Tinto and FMG committing a total injection of $10 billion into the economy in the form of their South Flank ($4.7 billion), Koodaideri ($3.5 billion) and Eliwana ($1.7 billion) mines respectively.
Demand for space by specialist mining firms and the associated service firms are expected to drive office absorption through the coming years.
This outlook is underpinned by the growth among the state’s office and industrial job advertisements, which are the highest nationally.