Experts discuss Western Australia’s investment market

Hundreds of people tuned in to listen to July’s edition of RWC’s Between the Lines webinar, where our panel of experts discussed Western Australia’s commercial investment market.

Ray White head of research Vanessa Rader hosted the webinar, and was joined by RWC WA joint managing director Stephen Harrison, and RWC WA director of capital markets Brett Wilkins.

“Western Australia has been one of the markets for a number of years now which has outperformed through GSP and the economy when it comes to Australia,” Ms Rader said.

Ms Rader said Perth’s office market had been outperforming other capitals around the nation, with the vacancy currently sitting at 14.9 per cent. She asked Mr Wilkins what he was seeing in the office market in Perth.

“There’s a lot of people wanting to hop into the market, but you’ve got a disconnect between a lot of vendors and purchasers,” Mr Wilkins said.

“There’s only been two large office sales in the last 12 months. I think that’s going to start to change, you’re seeing some of the owners start to revalue their books.

“There’s plenty of demand out of Singapore and local demand for offices, but it’s just taking a reassessment of values.”

Mr Wilkins said Perth had bucked the work-from-home trend which has been taken on globally.

“The mess that’s happening in Sydney and Melbourne and the US is not happening in Perth,” he said.

“The work-from-home factor is not that strong here, with occupancy still sitting at 85-90 per cent.

“But I do think the office market overall has been tainted by what’s happening in Sydney and Melbourne.”

Mr Harrison said Perth’s office market had already started attracting interest from offshore investors.

“One of the large office transactions Brett mentioned was bought by a Japanese company, whereas we hadn’t seen much interest out of Japan before,” Mr Harrison said. “There is always interest coming out of Singapore.

“Where our problem lies is having assets of which are at a scale that interests them.

“Most of these offshore investors can’t be bothered unless it’s an asset worth more than $60-70 million, and we just don’t have a huge amount of that stock listed over here.”

Mr Wilkins said the Singapore and Malaysia enquiry into Perth was the strongest it’s been since the start of Covid.

“There’s always been strong Singapore interest into Perth, but Covid stopped that for a number of years,” he said.

“The Singapore market is as hot as you can get, but there’s now a lot of private interest back into Perth.

“I think it’s very opportunistic, it’s seen as a good time to buy. There’s always some money that will flow in here because it’s a safe haven.”

Mr Wilkins said there was strong retail interest from offshore buyers as well.

“I sold two large retail properties in Murray Street Mall earlier this year for around $80 million, and while they were both bought locally, a number of the under bidders were out of Singapore and Indonesia.

“They’re also looking at industrial investments, it’s right across the spectrum.”

Mr Harrison said retail centres, particularly neighbourhood centres, had seen strong demand from family investors, syndicates, and interstate investors.

“There have been a number of centres which have sold off-market, and the yields on those centres are still relatively tight,” Mr Harrison said.

“They are seen as a safe haven investment, especially if they are centred around non-discretionary spending with a supermarket anchor, maybe a hairdresser or a liquor store.

“If they are based around non-discretionary spending we are still seeing yields around the 6 per cent range and on the odd occasion even a touch below.”

Ms Rader asked the experts what the outlook for new construction looked like in Western Australia, with construction costs, planning issues, and labour shortages being problems in the past.

“There have been some improvements in planning with the local government completely bypassed now, you just go straight to the state government.

“So planning’s not the big issue now, it’s just construction costs and the lack of tier one builders.

“Construction costs seem to be stabilising, but there’s still the issue of a lot of major builders failing, so if you want to develop a property, who do you actually go and talk to?”

Mr Harrison said it was a bit of a chicken and the egg situation where they need the population to fill the labour shortage, but we need to build the apartments for people to live in.

“We need workers, we need population to build buildings, but unfortunately in a lot of areas high density apartment developments aren’t feasible. It’s only really in areas with high networth demographics that this projects are even feasible.

“So we’ve got ourselves in a situation where we need workers to build buildings, but we don’t have the buildings for them to live in.

“As it stands we have 1500 to 2000 people a week moving into WA, and we don’t have enough room for them as it is. So I’m not really sure where that supply will come from in the future.”