CBD office vacancies soar

Marissa Lague

The Property Council of Australia is tomorrow expected to release official figures showing the CBD vacancy rate has climbed close to 13 per cent.

Leasing deals in the six months since the last review of Perth's office market, when official CBD vacancy was at 9 per cent, have not been enough to offset the high level of relinquished space.

Perth's status as most expensive office market has been unravelling since the start of the resources downturn in 2012 when demand declined sharply.

Building owners had tried to maintain leasing rates by offering incentives but Justin Boelen, director of tenant advisory firm Australian Corporate Property and Projects, said rents had fallen in the past six months.

"Face rents have started to fall from $50 to $100/sqm depending on the location and quality of the space," Mr Boelen said. "Rents for quality space remains stable.

"The trend in the Eastern States markets has been for incentives to rise before rents fall, so, with pressure on rents, incentives will stay and potentially increase for some time yet."

Mr Boelen said incentives were unchanged at 20 and 30 per cent from the beginning of the year but varied according to the identity of the tenant, the location of the property and the building.

"What has changed in the last six months is the acknowledgment from agents and owners that incentives exist . . . to the point where incentives are now part of their leasing campaign."

Despite the city's higher vacancy rate, Michael Knight, Colliers International's manager for research and urban economics said there was no reason to panic.

"That the WA economy is transitioning is no surprise and least of all to the CBD office market, which has been seeing the effects of a fairly significant drop off in resource sector project activity," Mr Knight said.

"The key results for the office market have been a climbing vacancy rate and an environment of increasing incentives . . . we are beginning to see some downward pressure on net face rents.

"But it's important to note that these impacts on the Perth CBD office market, as significant as they appear right now, should be seen for what they are - a cyclical change and an expected correction in what was, in effect, an overheated market."

Colliers International's office leasing director Neil Kidd said the tough point for Perth would come next year and into 2016 when newly constructed stock came into the market at the same time as a sizable amount of refurbished space.

"What's happening now is that incentives are climbing and rents are not falling markedly but by the middle of 2015, if there is not an upswing in demand and the new space hits the market, we may well see that change," Mr Kidd said. Colliers International says the CBD vacancy rates is closer to 14 per cent.

Tenants with expiring leases are keen to secure better deals.

"Tenants are demanding better deals but they still need be prudent," Mr Boelen said. "Businesses can gain substantial savings through incentives offered on longer-term commitments but some businesses are still acting cautiously, which is a reflection of overall business confidence.

"Should the status quo remain, we would expect a flight to quality as is often seen during periods where rental markets favour tenants."

He said landlords had had a mixed response to the change.

"Some are very proactive, others reactive and there are a handful who have decided to sit it out and leave their tenancies vacant until they achieve their rental terms," Mr Boelen said.

"They need to be prepared and this is where we'll see the proactive landlords keep abreast of the market."