Mining boom to push up Perth office rents over next decade: Savills

Mining boom to push up Perth office rents over next decade: Savills
Mining boom to push up Perth office rents over next decade: Savills

Investors looking for solid returns in commercial property might want to consider Perth. 

According to a new forecast, Perth office space will need to grow by 50% to
2 million square metres by 2020 to meet demand “driven by the state’s new wave of resources projects”. 

The report, Property Demand and Resource Production Growth, prepared by consulting firm ACIL Tasman on behalf of Savills, says the next resource production expansion phase will be unprecedented, with the gross value of high likelihood projects totals some $220 billion “dwarfing” previous expansion phases. 

“Office demand projections based on resource production suggest an annual growth of around 4% in required office space. This implies total demand for just over two million square metres in 2020, an increase of around 50% from current levels.”

Note: Resource production value is measured at 10-year average prices

Data source: Department of Mining and Petroleum WA and ACIL Tasman modelling 

As an example, it points to the announcement of the Gorgon gas project final investment decision as an example that led to noticeable fall in Perth office vacancy rates. 

The Perth office market is already booming, according to a July report by Jones Lang LaSalle, which says Perth is the tightest CBD office market, with vacancy rate just over 5%.

Prime gross effective rents in Perth increased by 3.9% in the second quarter of 2011 and have risen by 11.2% since the trough in the rental cycle was recorded in the third quarter of 2010. 

The Savills- commissioned report notes that while in the past office demand in Perth has been somewhat erratic, “the upcoming investment phase promises to break this cycle and create a substantial and lasting increase in office demand in Perth”. 

The report concludes that committed supply additions will not meet this level of demand, therefore putting upward pressure on office rents. 

Paul Craig, Savills WA managing director, says the amount of projected demand for additional office supply by 2020 “clearly highlights the impending shortage of Perth office supply as WA’s new wave of resources projects come to life”. 

“With an extended period of mining prosperity on the horizon in WA, underpinned by major infrastructure investment, low unemployment levels and population growth surpassing the national average, demand for prime Perth CBD office space will continue to grow and increase pressure on availability,” he says. 

“Obviously, this is great for landlords or anyone representing landlords. Vacancy is already low, is set to tighten further in the next 12 months and then with no new supply committed to proceed from 2014 onwards, rents should continue to climb,” he says. 

Besides pushing up demand for office space, the upcoming extraordinary resources growth phase will benefit the entire Western Australian economy, transforming it from almost solely driven by minerals and energy production to a more integrated economy also driven by technology and knowledge. 

Craig acknowledges that this would not be good news for tenants. 

“There are already limited opportunities and tenants with substantial corporate requirements will struggle to find space, and the cost of renting that space will continue to rise. When new opportunities do arise tenants will have to move quickly to secure them or prepare for a bidding war.” 

Craig says Perth will have to wait for major new developments such as Waterfront, City Link and Riverside to be delivered before there is significant easing in office market undersupply.




Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


Be the first one to comment on this article
What would you like to say about this project?