Mining downturn hits West Perth commercial landlords
Commercial property in West Perth, an area dominated by resource-related businesses, is in the doldrums as the downturn in mining investment hits the market.
Vacancy rates in the suburb climbed to 10.9% in January 2015 from 9.2% in July 2014, according to the Property Council of Australia.
Colliers International estimates that vacancy rate equates to 46,117 square metres of unoccupied commercial space in West Perth at the beginning of 2015.
A quick search on realcommercial.com.au of for lease listings in the area reveals more than 950 offices available. Numerous listings are advertising rent cuts and attractive lease terms.
Two properties on Hay Street, one at 1141 and the other at 1133, are advertising “massive” rent reductions, asking for rents that equate to just $195/sqm. The advertisements for the 317sqm and 460sqm offices declare: “ALL OFFERS CONSIDERED. OWNERS WANT THE PROPERTY LEASED YESTERDAY. YOU WILL NOT BE DISSAPOINTED WITH THE LEASE TERMS THAT ARE ON OFFER”.
Another property at 8 Parliament Place is available now asking just $150/sqm for a fully fitted out 399sqm office on a sub-lease.
Those asking rents represent a dramatic drop compared with 2011 and 2012 levels.
Average face rents for full-floor A Grade premises in West Perth have fallen to between $400/sqm and $475/sqm from around $550/sqm in late 2011 to early 2012, according to Colliers’s analysis. Offices in B Grade buildings are leasing for $350/sqm to $400/sqm, down from almost $500/sqm three years ago.
Savills’ Spotlight on West Perth, released in February, says net effective rents – which take into account incentives such as rent-free periods and assistance with fit-out costs – are even lower.
Incentives in the West Perth office rental market sit at around 30%, with landlords using a range of tactics to attract tenants in the slowing market.
“Incentives [are] now at such a level that the majority of fit-out costs can be covered,” Savills notes in its report.
A 463sqm office suite in Ventnor Avenue advertised for lease on realcommercial.com.au is offering a year’s free rent.
The average net effective rent for an A Grade property was $289/sqm in December 2014, down 26% compared with December 2013, Savills’ research shows. Net effective rents in A Grade buildings range from $254/sqm to $333/sqm net, and in secondary grade buildings from $210/sqm to $245/sqm net.
The lower rents and higher incentives are being offered in response to weakening demand. More space is being vacated in West Perth than is being filled, with net absorption, which measures this difference falling by 4310sqm in the 12 months to December 2014, Savills reported.
Leasing activity was down by 50% in the 2014 calendar year compared with the year before. Just 9479sqm of space was leased, compared with the annual five-year average for the suburb of almost 20,000sqm.
Those tenants who have been leasing offices have taking advantage of the soft market to upgrade their premises. As such, vacancy rates are much higher in secondary properties in the area than in A Grade premises.
The vacancy rate for secondary properties, which make up about two thirds of the stock in West Perth, was 12.9% - almost double that of A Grade premises in the area which had a 6.8% vacancy rate, Savills reports. B Grade properties have the highest vacancy rate at 13.4%.
Almost two thirds of the space that was leased was taken up by mining and utilities industries, with finance and insurance companies taking up the balance.
Savills expects vacancy rates in West Perth to rise further as mining investment continues to slow. It notes, however, that a lack of new developments planned and under construction in the area will lower vacancy rates in the medium to longer term.