Perth CBD office vacancy rate up 0.6ppts to 19.7% in Q1

New office stock completions drove vacancies up.

Headline vacancy in Perth CBD’s office market increased by 0.6 percentage points (ppts) to 19.7%, despite quarterly net absorption totalling 9,300 sqm. JLL says this was driven by the completion of new office stock in 1Q22.

The centralisation of tenants from outer suburban markets as well as new business entrants into the Perth market were significant contributors to net absorption over 1Q22. Occupier activity was predominantly led by tenants within the mining and professional services sectors.

Here’s more from JLL:

An uptick in the short-term supply pipeline

Construction works continue at Chevron HQ (54,000 sqm) which is 96.3% pre-committed. Capital Square Tower 2 (25,200 sqm) reached practical completion in 1Q22, with strong pre-lease activity recorded prior to completion. Additionally, three other developments are under construction totalling 34,800 sqm.

Other than developments currently under construction, the supply pipeline for both the Perth CBD and West Perth office market remains limited given elevated vacancy rates. Plans are approved for a further 13 projects in the CBD, totalling 357,400 sqm. Proposed new office projects are likely to require substantial pre-commitment to proceed.

High incentives continue to limit effective rental growth

Prime net effective rents in the Perth CBD office market recorded a marginal increase of 0.4% in 1Q22 led by a mild decrease in incentives and a minor upward adjustment in face rents. Prime net effective rents were unchanged in the West Perth office market over the quarter.

Prime yields continue to hold steady in both Perth markets over the quarter, with the CBD prime yield range remaining at 5.00%-7.50% and West Perth at 6.75%-7.75%.

Outlook: Yields are anticipated to compress over the next 12 months

The WA resources industry has remained resilient through the COVID-19 pandemic, providing support to economic conditions. With a strong pipeline of resources projects approved, demand for office space is likely to be led by the mining and professional services sector.

Prime yields are expected to compress over the next 12 months. Several well capitalised groups exist in the market seeking long WALE assets with a strong covenant. The recent reopening of the WA border is expected to benefit the office market, with an expected increased pool of investors looking to capitalise on investment opportunities.

Note: Perth Office refers to Perth's CBD office market (all grades).