2022-09-27-莱坊-Perth_CBD_Office_Market_September_2022_8页_4mb

Perth CBD Office Market Summary - September 2022

Core Content

The Perth CBD office market continues to show resilience and strong performance, despite the broader economic challenges posed by rising inflation and interest rates. The market is characterized by a flight to quality, with significant demand for premium office space, and a decline in premium vacancy rates. This report outlines key trends, market indicators, and future outlook for the Perth office market.

Key Market Indicators (July 2022)

Main Points

1. Market Performance

• The Perth CBD office market has experienced above-average demand, especially in the premium segment.
• The premium vacancy rate fell to 4.8% in July 2022, the lowest in eight years, while the overall vacancy rate increased to 15.8%.
• Net absorption in the CBD rose by 13,302 sqm in H1 2022, driven largely by the premium segment with 6,150 sqm absorbed, accounting for 46% of total CBD net absorption.

2. Rental Growth

• Prime net face rents increased by 2.3% YoY to $637/sqm.
• Prime net effective rents also grew at 2.3% YoY, reaching $321/sqm.
• The rental discount between prime and secondary markets remains high at 37% in face terms and 42% in effective terms.

3. Supply and Development

• New supply has been a key factor in the market's dynamics, with Capital Square Tower 2 and several refurbishments contributing to higher vacancy in A-grade and secondary markets.
• Major developments expected to be completed in the coming years include:
  • Westralia Square 2 (9,300 sqm) – H2 2022
  • Capital Square Tower 3 (16,000 sqm) – H1 2023
  • Chevron HQ (52,000 sqm) – H2 2023
  • 9 The Esplanade (32,000 sqm) – H1 2025
  • Lot 4 Elizabeth Quay (70,000 sqm) – Development Approved, TBC

4. Yield and Funding Costs

• Rising interest rates have led to a 25 basis point increase in prime office yields to 6.55%.
• Bond yields have surged, with the ten-year yield rising from 1.7% to 4.2% over the year.
• The prime yield spread to government bonds narrowed to 288 basis points in July 2022, from 462 basis points in December 2021.

5. Investment Trends

• Office investment in Perth slowed in H1 2022, with only $16.1 million in transactions.
• However, several major deals are in the pipeline, including London House, Allendale Square, and St Martins Centre, which are expected to boost deal activity later in the year.

6. Future Outlook

• The outlook remains positive, with expectations of declining vacancy to around 10% by 2025.
• Face rental growth is projected to accelerate to 3.5% YoY in 2023 and 4% per annum over the next five years.
• Incentives are expected to gradually decline, leading to a stronger effective rental growth of over 5% per annum.

Key Challenges

• Construction cost inflation has reached a 40-year high, complicating new developments.
• Global economic uncertainty and rising interest rates are expected to slow consumer spending and economic growth in the second half of 2022 and into 2023.
• The potential development of 70,000 sqm at Lot 4 Elizabeth Quay could impact the market recovery and increase vacancy.

Conclusion

The Perth CBD office market is demonstrating a strong recovery, with premium space in high demand and rental growth picking up. While overall vacancy has increased due to higher supply, the premium segment is showing resilience and strong leasing activity. The limited development pipeline beyond 2023 is expected to support a continued decline in vacancy and drive rental growth. However, rising funding costs and construction inflation pose challenges for future development and investment activity.

Contact Information

• Research: Chris Naughtin (Email: Chris.Naughtin@au.knightfrank.com, Phone: +61290366794)
• Office Leasing: Rick McKenzie (Email: Rick.McKenzie@au.knightfrank.com, Phone: +61892252409)
• Occupier Services: Theo Smyrnniotis (Email: Theo.Smyriotis@au.knightfrank.com, Phone: +61892252521)
• Valuations & Advisory: Cameron Thomson (Email: Cameron.Thomson@au.knightfrank.com, Phone: +61892252452)
• Managing Director, WA: Craig Dawson (Email: Craig.Dawson@au.knightfrank.com, Phone: +61892252406)

Knight Frank Research Reports are available at knightfrank.com/research.