Perth commercial property offers prime yield opportunities

The Western Australian commercial property market continues to demonstrate superior resilience and growth potential compared to eastern state benchmarks, backed by steady economic performance, sustained population growth, and tight market conditions across major sectors.

Speaking on the latest edition of RWC’s Between the Lines Live podcast, RWC WA Director of Capital Transactions Brett Wilkins and Ray White head of research Vanessa Rader provided a deep dive into the state’s commercial landscape, identifying high-conviction opportunities for investors over the next 12 months.

Perth CBD office assets emerged as the most significant contrarian investment opportunity currently available in Australian commercial real estate.

With existing net effective rents sitting drastically below replacement costs, market mechanics dictate substantial upward pressure on rents alongside diminishing tenant incentives.

“CBD office is totally underloved, underappreciated, not considered enough, and should be,” said Brett Wilkins, director of Capital Transactions at RWC WA.

“If I was back running my investment company or I had a bigger budget, I would be diving deep into quality offices in Perth.”

“In terms of the cost it would take to build something in today’s market, experts tell me you’re going to require between $1,100 to $1,400 a metre net, with only around 20 per cent incentive,” said Ms Rader.

“There is such a wide disparity between current rents and what it takes to build, so you can understand that those rents are just going to have to uplift.”

“I’ve got the FMG building at 256 St Georges Terrace for sale at the moment,” Mr Wilkins said.

“The net effective rent that they’re paying after incentives is about $330 a metre.

“Rents have got to rise. Incentives are going to drop.

“Net absorption is still strong, and there’s only one way rents can go.”

Addressing market fears surrounding remote work and technological displacement, Mr Wilkins reinforced the structural necessity of office assets in Perth.

“Work-from-home is not a big factor here, it’s a small factor,” Mr Wilkins said.

“And regarding AI, I get people saying we’re no longer going to need office buildings.

“I’m old enough to remember when the first computers came in, or the fax machine, or when the internet came in.”

“When the internet came in, that was the end of it all, the office market was going to collapse. I don’t think we’re going to stop needing office space.”

A central theme of the discussion was the persistent 100-basis-point yield differential between Perth commercial assets and comparable properties on the East Coast.

This margin, combined with WA’s economic stability and lack of residential-style unemployment spikes, continues to attract interstate private buyers, syndicates, and Asian institutional investors.

“There’s a 100-point differential between Perth investments and Eastern States investments,” Mr Wilkins said.

“Now, I think it’s totally ridiculous, and I could argue very strongly that it should be the other way around given our economy and given our rental growth. But the reality is there’s a 100-point differential, so we get a lot of eastern states buyers and that expectation is going to continue.”

Beyond the office sector, industrial property remains exceptionally firm. Yields have adjusted to between 6 per cent and 7 per cent, but severe land supply shortages and aggressive owner-occupier demand keep vacancy low.

“Industrial has softened from super, super strong to strong,” Mr Wilkins said.

“The major demand is actually owner-occupiers. There’s not a week goes by where you don’t get a call saying, ‘I need 2,000, 5,000, or 10,000 metres of industrial,’ and there’s nothing because of supply. The supply of industrial land is negligible, and none of that’s getting cheaper.”

In retail and essential services, non-discretionary assets, such as food, alcohol, fast food, and medical centres, continue to experience heavy inquiry from Singaporean and interstate buyers.

Fast food yields remain highly competitive, while medical property stands out as a recession-proof sector characterised by sticky, long-term operational tenants and high barriers to competitive entry.

“Medical is hot,” Mr Wilkins said.

“There’s really strong demand from institutions, syndicates, and high-net-worths.

“They’re seen as a little bit more recession-proof and harder to compete with, because whilst you can set up a medical centre, you can’t just go and get 10 doctors to occupy it that easily.”

Multi-unit residential blocks of flats under $10 million are also emerging as a major target for private capital.

Beyond individual private investors seeking rental upside, corporate businesses are actively buying whole blocks to solve acute workforce housing shortages.

“One of the major driving forces on buyers for blocks of flats are actually businesses that want somewhere for their foreign staff because of the shortage of laborers and trades,” Mr Wilkins explained.

“Bricklayers, tilers, welders – they’ve got to have somewhere to sleep. So for a lot of significant businesses, that is a major buyer profile.”

Conversely, the childcare sector requires a far more selective, boutique-focused approach due to localized suburban oversupply, rising regulations, and operational staffing constraints.

“I’ve been a contrarian for some time on childcare,” Mr Wilkins added.

“Good childcare with good tenants in good locations is fantastic, but there’s no impediment to competition. You get to suburbs that are just over-supplied. With staffing costs and regulations, you’ve got to look at it very carefully.”

Ms Rader concluded that technology will continue to complement, rather than undermine, underlying commercial spatial demand.

“If we get better efficiencies through technology, headcount isn’t going to remarkably change, and the requirement for office is definitely here to stay,” Ms Rader said.

“Perth commercial property offers exceptional fundamentals right now.”