DESPITE the WA economy showing strong signs, the ongoing demand for office space is expected to remain limited, making it difficult to rebound quickly from the current poor position of occupied stock, according to Ray White Commercial’s latest Between the Lines* report.
“Over the past six months, the Perth CBD has lost 32,991sq m* of occupied stock, resulting in vacancies growing to 20 per cent,” said Ray White Commercial (WA) Associate Director Office Leasing Sallese Wilmot-Barr.
“This negative take-up is a symptom of space consolidation in the A grade market, with tenants such as WorleyParsons and St George reducing their accommodation requirements as well as business relocation, such as WA Police into East Perth.
“We’ve seen a strong movement of the workforce back into the CBD in late 2020 and into 2021, however the subsequent lockdown in Perth last month saw businesses considering a range of flexible working options or arrangements for their employees.
“We aren’t seeing actual results of tenants contracting as a direct result of working from home. Flexible working has been around for a few years and businesses still tend to accommodate it if all staff are to attend the office on one day.
“The Perth CBD office market has been put in a tough position; over the past few years we’ve seen improvement in demand for rental stock helping to reduce vacancies.
“However, the continued addition of new and refurbished stock put a cap on market recovery and any chance of rental growth.
“With the onset of COVID-19 putting pressure on businesses and occupation, this has driven vacancies up, together with the continued new supply pipeline which will further hamper a timely recovery to this market.
“As a result, rental rates are under pressure. Over the last few years while face rents remain static, incentives did move downward for premium and A grade assets resulting in improvements in the effective rental rates.
“However, any further improvements to incentives are unlikely given the current environment with A grade rates now reverting to their prior highs.”
Ms Wilmot-Barr said over in West Perth the vacancy position remained one of the highest non-CBDs in the country.
“The movement in occupation over the last six months has seen very little change. This is an encouraging sign for this market which was already hampered by high vacancy prior to the COVID-19 pandemic,” she said.
“Many tenants in West Perth want to be in this precinct and the ongoing withdrawal and refurbishment of stock over the last few years (and in the medium term) will continue to add attractive and fresh accommodation options into the market which historically tenants have looked to the CBD when relocating.
“Overall, the Perth office markets face similar issues to office markets across the country. The strength of the WA economy and stable unemployment rate will put this market in good stead for a strong revival.
“However, the high rates of vacancy for both the Perth CBD and West Perth prior to COVID-19 will prolong this period of recovery keeping incentives elevated and face rents under pressure.
“Supply will be an influencing factor of the short to medium term while demand levels remain subdued. The future of office stock will be one to watch over the coming years.
“It’s likely that this pandemic will influence the way in which employers and employees interact with their office environment, with a greater emphasis on flexibility and hygiene.
“Many occupiers are still uncertain on the best way forward with their tenancies, as some move away from hot desking and small meeting spaces for larger more expansive and open workspaces while others navigate the ‘part-time in office’ workforce and the upgrades needed to hygiene and cleaning to make sharing desks a viable option.
“Over the coming years, we expect a greater focus to be on automation and flexibility of floorplates to cater for less touch points and allow physical distancing, however still being able to rationalise cost and reduce.”