The vacancy rate in Perth's much-watched CBD office market is set to climb to about 10 per cent later this month, capping a year of steady declines for office leasing demand.
Downsizing and departing tenants left the market with a sub-lease tab that has reportedly stuck close to 80,000sqm. Weaker demand has lowered leasing rates and doubled leasing incentives to 12 per cent, but agents are holding firm on their outlook for a buoyant office market in 2014.
Jones Lang LaSalle is forecasting a CBD vacancy rate close to 10 per cent and says two big leasing deals likely to be finalised before Christmas reflected moves by tenants to take advantage of favourable leasing conditions.
"The vacancy rate has gradually crept up and at the end of quarter three it was about 8 per cent, so given the trend we anticipate it to go higher to about 10 per cent by December 31," Jones Lang LaSalle's WA managing director John Williams said.
"Comparatively we still have one of the lowest vacancy rates of national CBD capitals.
"Equilibrium is around 7 or 8 per cent so it's marginally in favour of tenants."
Mr Williams said mining companies had been through their cost-cutting phase and the market had seen the worst of the market sub-lease space. But in the wake, rents had fallen and incentives increased.
"Vacancy rates will probably be higher by the end of the first quarter but for now the market is bumping along the bottom," he said.
"We see vacancies levelling out or coming down toward the balance of 2014 and I wouldn't be surprised if we are back in single figures by the start of 2015."
The last big injection of sub-lease space came from Barrick Gold's Brookfield Place office and agents are reporting some space offered up to the sublease market was now being retained.
"Hopefully, Barrick Gold will be the last of the large ones and we are seeing the first signs of some groups withdrawing space for their own use," Savills director of office leasing Graham Postma said. "If that trend increases, the vacancy rate could drop off more quickly."
Savills' lease expiry profiles indicate an active leasing market in 2014, and in 2015 and 2016 when a spate of new city office buildings are due to be completed.
"Anecdotally, incentives have increased but are still very competitive on a national basis and while there is a bit of downward pressure on rents, they are holding up well," Mr Postma said.
In terms of the number of leasing deals and the amount of office space leased, 2013 was a quiet year for the CBD, with most of the deals between 500sqm and 1000sqm.
Despite the quiet conditions, David Cresp, director of office leasing at Colliers International, said Perth's office market had been known to turn quickly.
"We've had a turbulent year and the biggest influence was the downturn as the mining industry focused on cost reduction rather than new capital projects," Mr Cresp said.
"We believe the medium and long-term fundamentals in Peth are incredibly strong.
"A vacancy rate of 10 per cent is not a bad result and a lot of landlords have the majority, if not all, of their buildings full."
In West Perth, office rents have fallen about 15 per cent and like the CBD, smaller leasing deals have been the main focus.
Burgess Rawson associate director Clive Norman said leasing demand in West Perth was likely to take longer to rebound than the CBD.
"West Perth has been affected more than the CBD because its home to small-cap mining companies and they're not doing anything at the moment," he said.
"It also doesn't have the diversity of the CBD, you've got com- panies trying to offload space and there's no one picking it up because they are all in the same boat."
Mr Norman said tenant sentiment in West Perth was cautious and a big jump in inquiries which started a month ago had yet to translate into concrete deals.