Downturn in Perth office market far from over: BIS Shrapnel

Downturn in Perth office market far from over: BIS Shrapnel
Downturn in Perth office market far from over: BIS Shrapnel

The downturn in Perth’s office market could last for at least two more years, with the CBD vacancy rate yet to peak, according to a grim forecast by research firm BIS Shrapnel. 

Prime net stated rents are forecast to fall by a further 19% and net effective rents by a further 23 percent. Rents will stay depressed for the remainder of this decade. 

Average stated rents are not expected to regain current levels over the next 10 years, according to some of the key findings of BIS Shrapnel’s research. 

The research contrasts with some commentators’ views that the Perth CBD office market is close to the bottom of the cycle. The CBD vacancy rate has already blown out to around 22 percent from just 4 percent in 2012, prime net stated rents have fallen by more than 20 percent, and effective rents have fallen by 60%. With the volume of new completions slowing down, the argument is that the market will start to recover. 

Not so, says BIS Shrapnel. The next two years will be rocky for the Perth office market. 

Demand for office space in Perth is closely tied to investment and in particular, resources investment — both in terms of the resources companies themselves and those who service them. The problem is that the downturn in resources-related investment is not over yet. 

BIS Shrapnel estimates that Western Australia is less than 40 percent through a near 70 percent decline in engineering construction. Whilst investment in iron ore has been falling for a number of years, the decline in oil and gas investment is just beginning. As mega projects (such as Gorgon 1st to 3rd train and Wheatstone) are completed and not replaced by projects of similar value, this will contribute directly and indirectly into further falls in employment and demand for office space. 

“Falls in resources investment will swamp the positives for office employment coming from increased mining production” says Lee Walker, senior project manager at BIS Shrapnel. 

The completion of Woodside’s new 55,000 square metre headquarters at 98 Mounts Bay Road in 2018 is expected to push the office vacancy rate even higher to an estimated 24 percent by June of that year. 

“Rising vacancies and increasing competition to secure tenants will put further downward pressure on market rents” says Walker. 

Average prime net stated rents are expected to fall by close to 20 percent over the next two years, with effective rents forecast to fall by 23 percent—putting the peak to trough fall in effective rents at nearly 70 percent. 

“It’s too early to call the bottom of the cycle. There’s more pain to come for building owners. The balance of power in leasing negotiations will clearly favour tenants over the next few years” concludes Walker.

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Office Market

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