Perth notched up the highest prime office net rental growth in the country in the first three quarters of 2019 as the ailing CBD market continues to rebound.
CBRE’s Q3 Office MarketView report shows that Perth’s prime rents grew by 11.6% during the period, bolstered by falling tenant incentives.
“With limited supply confirmed before December 2023, Perth rents are expected to continue on their current trajectory in the short term,” CBRE’s Head of Office Research Ben Martin-Henry noted.
“With a number of telling indicators pointing to a revival and government policy seeking to stimulate the wider economy, the Perth office market is well placed, particularly in light of strengthening employment figures and increased activity in the resources sector.”
Andrew Denny, CBRE Senior Director, Office Leasing, noted that Perth’s prime leasing incentives were continuing to fall off the back of a reduction in quality available space.
“A flight to quality and a flight from the suburbs to the CBD have been key market drivers in the past few years and this is now being supplemented by the expansion of existing tenants and, in some instances, new tenants coming to Western Australia,” Mr Denny said.
“Moving forward, we expect these last two factors to have the biggest influence on Perth’s market recovery. The CBD is also set to benefit from limited future supply over the next three years, which will allow current vacancies to be absorbed until new space is delivered.”
Major upcoming Perth projects include the construction of 52,000sqm Chevron headquarters in Elizabeth Quay, which is due to open in 2023. Development plans have also been lodged and site works have begun for a 32,400sqm tower in the Capital Square precinct.
On the investment front, CBRE’s MarketView report highlights that Australian office sales totalled $17.9 billion in the first three quarters of 2019, the highest level on record and a 50% increase on the corresponding period last year.
Investor appetite and big-ticket transactions underpinned the bumper sales result, as highlighted by the fact that the actual number of individual transactions was the lowest since 2013.
CBRE’s Western Australia Head of Capital Markets Aaron Desange said the volume of Perth transactions was broadly in line with 2018 – primarily due to limited stock availability.
“Investors are keen to take advantage of the high yield spread to Sydney and Melbourne but are being somewhat hampered by a lack of stock on the market,” Mr Desange said.
“With the yield differential between Perth and the major east coast markets at historical highs, Perth has become a compelling investment destination for both foreign and domestic capital and a string of recent transactions are awaiting settlement, including William Square ($189.5m) and the BGC Centre ($100.4m).”
On the yield front, CBRE’s MarketView report shows that Sydney and Perth recorded the biggest compression in prime yields in Q3 to average 4.6% and 6.3% respectively.
“With the RBA delivering three 25bps rate cuts since the federal election, the cost of borrowing is becoming increasingly cheap for investors, who are now benefitting from rates of sub 2.75%,” Mr Martin-Henry said.
“This situation is expected to continue due to an inverted yield curve, meaning that the cost of debt in the long term is expected to be lower than in the short term. This is likely to lead to lead to further compression in property yields as the demand for bonds increases.”
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