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Vacancy rates continue to decline, and rents are growing substantially in the Perth CBD and West Perth.
PERTH, 19 October 2011 – Latest research from Jones Lang LaSalle has revealed that Perth’s CBD office vacancy rate has hit rock-bottom and is now the tightest in Australia.
John Williams, Managing Director of Jones Lang LaSalle Perth said the company’s latest quarterly research showed that vacancies in the CBD had almost halved, from 5.4 per cent in June to 3.2 per cent by the end of September.
“Perth’s CBD office market is now critically under-supplied and is at its lowest level since December 2008. Furthermore, West Perth has the nation’s second tightest market with just 3.3 per cent of properties vacant,” he said.
Perth’s vacancy rate stands in stark comparison to the company’s national figures which showed a decline from 7.6 per cent in the second quarter to 7.4 per cent between July and September.
Mr Williams said that the Perth vacancy rate reflected an almost unprecedented net absorption of 16,400sqm in the September quarter, while net absorption for the year to date stood at 43,900sqm, almost twice the annual average.
“Right now there is only 46,900sqm of vacant office space in the CBD, which is 23 per cent less than the 60,700sqm of net absorption recorded in the last 12 months.
“The take-up of office space over the last 12 months has exceeded supply by a staggering 238 per cent,” he said.
Mr Williams said the undersupply was also having a serious impact on rents across all grades in the Perth CBD, and had resulted in an 8.3 per cent increase in rents in the three months to October.
“Developments currently under construction will solve neither the vacancy rate nor the rental escalation situation,” said Mr Williams.
“These projects are 91 per cent pre-committed. Similarly the impact of the backfill created by Bankwest, BHP and the Government relocating to new buildings in 2012 and 2013 may not fully satisfy tenants’ appetites.
“Our research indicates that only circa 60,000sqm of this backfill remains available and this is being taken up weekly.”
Director of Commercial Leasing at Jones Lang LaSalle, Nick Van Helden said that the prime office market was continuing to surge forward, with the vacancy rate declining from 2.9 per cent to 2.5 per cent.
“Rents have grown at significant rates; in fact our research shows there has been a 20.4 per cent increase in the past year. Prime gross effective rents now average $749/sqm per annum.
“The secondary market had the standout performance. The vacancy rate dropped from 8.1 per cent to 3.9 per cent in a single quarter. Annual rental growth has now reached 17.4 per cent with average secondary rents now at $518/ sqm per annum,” said Mr Van Helden.
Jones Lang LaSalle Perth Research Analyst, Hugh Peacock, said the rates contrasted with the previous quarter, when the secondary vacancy rate increased as tenants relocated to prime stock.
He said that there have been a significant number of large leasing deals in the past few months, including BHP leasing 3,500 sqm 166 Murray Street, Bechtel leasing 1,000sqm at 140 St Georges Terrace along with the CB&I and Kentz Joint Venture taking up 1,100sqm at 251 St Georges Terrace.
The company’s research shows sub-lease vacancies falling dramatically to just 0.1 per cent of total CBD stock. The long term average is more than 1.2%.
Mr Peacock said that incentives had also continued to decline, falling to an average of 10 per cent.
“The rental market’s performance and expectations of further growth has seen capital values grow by 6.5 per cent since June, and 10.4 per cent over the last 12 months,” he said.
“The West Perth office market remains one of the strongest in the country, declining from 3.5 per cent in June to 3.3 per cent in September.
“The prime market is exceptionally strong, with a vacancy rate of 1.8 per cent and rental growth over the past 12 months totalling 21.0 per cent.
The South Australian Motor Accident Commission’s $103.5 million acquisition of 226 Adelaide Terrace from First State Group was the only major sale finalised in the quarter.
Mr Williams said the outlook for Perth office assets over the next year was positive, with a number of transactions including 251 St Georges Terrace and QV1 expected to be concluded during the last quarter of 2011.
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