Posted on Wednesday, July 1st, 2015 in by Matt Garmony
The Perth office rental market market along with the suburban office market is experiencing its highest vacancy in almost 20 years with a report from the Property Council of Australia in February 2015 indicating that the Perth’s CBD office vacancy is 14.8% in January 2015, up from 11.8% in July 2014 and 9.0% in January 2014. The Property Council of Australia report also indicated that “The office market in Perth is the barometer for the State’s economy. The lack of demand is a reflection of WA’s economic performance.” With a further 149,000m² of new supply to be added to the CBD in 2015, and further space proposed in the fringe CBD localities, the forecast is for the vacancy rate to increase to 18% by the start of 2016. Softening effective rents and rising incentives for commercial offices in the CBD which currently range between 20-30% which is reportedly the highest since 2006.
This decline in the office market is not limited to the CBD and has expanded to fringe CBD locations such as West Perth and Subiaco along with inner suburban localities of East Perth, South Perth, Nedlands and Osborne Park with an increasing number of properties available for lease with leasing agents reporting a limited interest and in order to be leased have to be priced right.
Suburban office locations such as the Perth Airport, Bentley, Mirrabooka, Joondalup and are now competing with the reduction in CBD and fringe CBD rental levels and greater incentives that are being offered to secure tenants.
The reduction in rental and increase for leasing incentives and vacancy periods has had a negative impact on the market value of commercial properties and thus agents specialising in this area have indicated longer leasing periods are being experienced with reduced demand particularly for the lower grade accommodation.
The Reserve Bank of Australia (RBA) held the official cash rate at 2% at the 2 June 2015 meeting after reducing the interest rate by 25 basis points to the historical low of 2.0% at its 5 May 2015 meeting. The RBA previously cut the interest rate to 2.25% in February 2015. The RBA Governor Glenn Stevens stated that “The global economy is expanding at a moderate pace, but some key commodity prices are much lower than a year ago. This trend appears largely to reflect increased supply, including from Australia. Australia’s terms of trade are falling nonetheless”. The Governor indicated that “the economy has continued to grow, but at a rate somewhat below its longer-term average. Household spending has improved, including a large rise in dwelling construction, and exports are rising. But a key drag on private demand is weakness in business capital expenditure in both the mining and non-mining sectors and this is likely to persist over the coming year. Public spending is also scheduled to be subdued”. We are of the opinion this is emphasised in Perth and Western Australia due to the downturn in the mining and resources sector and the economic flow on effects.
Should you require assistance with your market rent review of your existing tenancy or negotiation of a new premises, the licensed valuers at Garmony Property Consultants will be able to provide you with expert rental valuation advice.