The tide has turned in the Perth CBD office market, with tenant migration from the fringe and suburban areas contributing to a forecast drop in vacancy rates – the first fall in five years.
CBRE’s latest Research Viewpoint highlights the ‘flight-to-centre’ trend gaining momentum across Perth will underpin a drop in CBD vacancy from 22.5% in January 2017, to 21.5% by the end of June.
The fall comes after a substantial period of rising vacancy in the CBD since January 2012 when it reached a low of 3.3%.
CBRE Senior Director, Office Leasing, Andrew Denny said the decline in vacancy was happening at a much faster rate than expected.
“The movement of suburban tenants into the CBD, particularly those in West Perth, has accelerated considerably over the past 12 months. These tenants, some of whom initially relocated to suburban markets when the CBD market became too expensive at the height of the mining boom, are taking advantage of the current market to re-establish their presence in the city,” Mr Denny said.
Recent tenant agreements from the suburban markets include Grant Thornton Australia to Central Park and Wrays (both previously located in West Perth), as well as NG Services to 216 St Georges Terrace from Bentley.
“The withdrawal of older building stock and sub-lease space in the market is driving some significant movements, with larger corporates re-occupying previously vacant space.”
CBD sublease availability has now fallen five consecutive quarters, or by around 35% since peak sublease availability in December 2015.
CBRE Research Manager Gemma Alexander said approximately 34 tenants had signed deals within the CBD since the beginning of 2016, relocating from outer metropolitan markets.
“This accounted for around 28% of total deals signed in the city during this period,” Ms Alexander said.
“The majority of relocating tenants moved from West Perth, accounting for 32% of relocations, followed by Subiaco with 15% of relocations, Northbridge and East Perth. These relocations have contributed to more than 20,000sqm of net absorption in the CBD.”
Mr Denny said vacancy relief would also be supported by new entrants to the market.
“In addition to the take-up of space from suburban tenants moving into the CBD, there is positive growth from expanding tenants, as well as new entrants – including some from the eastern states,” Mr Denny said.
“For the first time since 2012, we have seen space leased for specific resource projects, which points to vacancy rates falling at a far faster pace over the next few years than what was initially anticipated.”
Highlighting the growth in project-driven leases, engineering company Clough Limited has leased a full floor at 18 Mount Street, while Cape has secured 933sqm at 216 St Georges Terrace.
The report highlights the prime CBD market is forecast to recover from the downturn at a far more rapid rate than the secondary market, with the later expected to deteriorate further before any improvement is seen.
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About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
