Perth office market needs “exceptionally strong growth stimulus”: BIS Shrapnel
Vacancy rates in Perth’s CBD office market are expected to remain above 10% for the next four years at a minimum, according to BIS Shrapnel.
The Perth Commercial Property Prospects 2014 to 2024 report found that even when an optimistic scenario was tested for Perth, modelling the impact of high levels of minerals production on office demand, the vacancy rate will increase to around 15% by June 2015. It was then expected to decline to 12% by 2018.
Currently, the vacancy rate sits at 10% to 13%.
BIS Shrapnel’s senior project manager and report author Lee Walker said that the forecasts suggest that engineering construction is to fall by a third over the next four years, and the drop in resources investment – a key driver for office space – will leave the absorption of this commercial stock very weak.
“The real problem on the demand side is that the downturn in resources investment has only just begun. It is the investment phase of the cycle, and particularly growth in investment, that underpins employment within office buildings and which drove the record levels of net absorption of office space in Perth in recent years” said Walker.
There are also a significant number of new completions in the pipeline, with 164,000 square metres of new completions currently under construction set to enter the market by December 2015.
“Even though around 65% of this new office space is pre-committed, we are worried about the volume of un-committed space, as well as the back-fill space that will be created as tenants relocate. All this space will need to be absorbed and we don’t believe there will be enough demand,” Walker said.
If this situation was to be turned around, an “exceptionally strong growth stimulus from export growth” would be needed to generate enough office demand to complete the additional space built in the next 18 months. Walker warned that he does not foresee this occurring.
