2023-10-10-莱坊-Perth_CBD_Office_Market_September_2023_9页_5mb

Perth CBD Office Market Summary - September 2023

Core Content

The Perth CBD office market continues to show resilience despite national economic headwinds, driven by strong tenant demand, limited new supply, and the ongoing strength of the resource sector in Western Australia. The market is characterized by a strong net absorption, a reduction in premium vacancy, and a stable rental environment, which positions Perth as a competitive office market in Australia.

Main Points

• Net Absorption:

  • Strong net absorption of 23,950 sqm in H1 2023, bringing the total over the past two years to 90,534 sqm.
  • This represents 4.9% of total stock, second highest among major CBDs, trailing only Brisbane.
  • A and B grade net absorption has been particularly strong, contrasting with other cities where premium grade absorption is more concentrated.

• Vacancy Rates:

  • Overall vacancy rate increased marginally to 15.9% in H1 2023.
  • Premium grade vacancy rate dropped to 6.3%, second lowest nationally, although this was distorted by 27,993 sqm of stock withdrawn for refurbishment.
  • Sub-lease vacancy in Perth remained low at 0.5%, indicating high occupancy and strong market performance, unlike other cities such as North Sydney and Melbourne.

• Rental Growth:

  • Prime net face rents rose by 1.5% over six months to July 2023, averaging $678/sqm.
  • Prime rents have increased by 5.3% over the last 12 months, among the fastest-growing markets nationally.
  • Net effective rents also grew by 1.5% to $347/sqm, reflecting strong performance despite economic challenges.

• Supply Outlook:

  • The 2023 supply pipeline is exhausted, with no new completions planned.
  • The next major supply addition is 32,000 sqm at 9 The Esplanade, expected to complete in H1 2025.
  • Lot 4 The Esplanade, a 60,000 sqm project, is under development and expected to complete in 2027.
  • Limited supply is expected to support lower vacancy rates through 2026.

• West Perth Performance:

  • West Perth has recorded five consecutive periods of positive net absorption, with a further 6,368 sqm in H1 2023.
  • Vacancy rate in West Perth dropped to 11.1%, the lowest since 2015, with A grade vacancy at a 10-year low of 5.3%.
  • The decline in vacancy is attributed to stock withdrawals by high-net-worth individuals and owner occupiers, as well as limited new supply.

• Economic Context:

  • Western Australia outperforms the national trend, supported by the resource sector, particularly in critical metals and rare earths.
  • Despite a decline in iron ore prices, the mining and minerals sector continues to drive demand for office space.
  • The national unemployment rate of 3.7% is closely mirrored in WA at 3.8%, indicating a strong labor market.

• Investment Climate:

  • Office yields in Perth have increased, with prime yields at 6.83% and premium yields at 6.33%, lower than A grade at 7.24%.
  • The recent stabilization of bond yields and the RBA's cautious approach to interest rates suggest a positive trajectory for investment markets.
  • Low transaction volumes and high funding costs have delayed sales, but the market is expected to recover gradually as rates stabilize.

Key Insights

• Market Resilience:

  • The Perth CBD office market is demonstrating resilience and outperforming national trends.
  • The limited supply pipeline is expected to support strong rental growth and reduce vacancy rates over the next few years.

• Flight to Quality:

  • The national "flight to quality" is evident in Perth, with premium grade assets experiencing strong demand and lower vacancy rates.
  • Larger occupiers are prioritizing quality, amenity, and ESG factors, which are driving the premium market.

• Future Outlook:

  • Prime rents are expected to continue rising due to sustained tenant demand and limited supply.
  • Effective rental growth is anticipated to come primarily from face rent increases, with incentives expected to decline slightly.
  • Perth is well-positioned to outperform other markets in the recovery phase, supported by its strong fundamentals and limited supply additions.

Conclusion

Perth's office market is robust, with strong net absorption, low vacancy rates in premium and West Perth, and rising rents. The limited supply and continued demand from the resource sector position Perth as a favorable market for investment, especially in the premium and A grade segments. As funding costs stabilize and economic sentiment improves, the market is expected to continue its positive trajectory.