View Comments
Suburban push as city leases dry up
Suburban push as city leases dry up

The first comprehensive review of Perth's suburban office market has revealed it contains more than 1.5 million square metres of space, far exceeding previous estimates of the city's outlying office supply.

The space has the potential to ease the shortage in the CBD where the vacancy rate has plunged to 3.3 per cent and there is limited new supply.

The survey by consultancy Y Research found Perth's suburban office market is the same size as the CBD office market, almost double previous industry estimates of suburban space and puts the vacancy rate for the 2243 office buildings in the suburbs at 11.7 per cent.

"With less than 100,000sqm of office space available in the CBD and West Perth, tenants looking for expansion space are expected to have limited options in the coming 24 months," Damian Stone, Y Research principal, said. "This report shows there is existing and new suburban office space that will ease but not solve the coming shortage."

The last development focus on the suburban office market occurred in 2007 and 2008 when office supply in the city market all but disappeared and Mr Stone said around 130,000sqm of space was built but the global financial crisis derailed plans for an extra 330,000sqm of space that included office parks at Perth and Jandakot airports.

"When the GFC came along, everybody put their extra space on the sub-lease market and discussions on the suburban office market ended nearly overnight," Mr Stone said.

Mirroring leasing trends in the CBD, the survey found most of the suburban demand for space is in A-grade buildings where the vacancy rate is 4.4 per cent. In total, there are only 30 A-grade buildings and most are in East Perth, Herdsman, Northbridge and Subiaco.

According to Mr Stone, CBD and non-CBD tenants will be competing for a limited number of high-quality office buildings in the future.

"In the next six months we expect the overall suburban vacancy rate to fall from 11.7 per cent and there will be a dramatic drop in A-grade space," he said. "There are only three A-grade spaces greater than 1500sqm and vacating CBD and West Perth tenants will most likely have to trade down or sideways when moving to the suburbs."

In contrast to the lack of building activity forecast for the CBD this year, office buildings totalling 91,202sqm are under construction in the suburbs.

Rent increases forecast for CBD offices this year are also expected to make the cheaper rents available in the suburbs more appealing.

If you move from a B-grade property in the city to a new development in West Leederville, there is a saving of 41 per cent, while a move from West Perth to Herdsman saves 14 per cent on rent.

Total occupancy costs, which include rents plus outgoings such as electricity, parking levies, security and cleaning for a CBD tenant are nearly double those being recorded in suburban buildings.

"The average total occupancy cost, or rents plus outgoings, for suburban office space is $447/sqm," Mr Stone said.

"Based on total occupancy cost, the average saving a tenant can make by moving from the CBD to Perth's suburbs is 40.6 per cent."

The survey, which tracked suburban office buildings from Port Kennedy in the south, Butler in the north and Kalamunda in the east, also identified Greater Belmont (Rivervale, Belmont and Ascot) Burswood, Leederville - in particular the 4ha Water Corporation site - the Canning Bridge precinct, Stirling and Jolimont as development hot spots.

An unexpected finding was the size of Northbridge's market which was thought to be the third biggest office market behind Subiaco and Herdsman. "Once you add in the new development at Perth City Link project and Charter Hall's Work Zone building, Northbridge will easily be the largest suburban market," Mr Stone said.

Suburban markets close to railway stations were among the best performers with the exception of the beleaguered Fremantle market where 32 per cent of its buildings, many of which are older and lower grade, have vacancies.

"The best performing major markets, Herdsman and East Perth, have numerous quality buildings, good transport links and support from major private and Government tenants," Mr Stone said.

In markets with more than 25,000sqm of office stock, suburbs with the lowest vacancies were Herdsman, 5.1 per cent, East Perth, 5.6 per cent, and Midland 6.1 per cent.

The worst performers were Fremantle 19.5 per cent, Northbridge 14.5 per cent and Nedlands 14 per cent. Northbridge's vacancy is due to three big buildings which should lease in the next six months - 130 Stirling Street, 12 Newcastle Street and 59 Lord Street.

"In the next six months we expect . . . there will be a dramatic drop in A-grade space."" Y Research principal, Damian Stone