- Positive absorption of 6,000 sqm in H2 2022, and 87,000 sqm over the past two years
- Vacancy rates have decreased marginally over the last year to move to 15.6%
- Supply additions to reach 79,000 sqm in 2023; the highest level since 2015
Perth’s CBD office market has experienced a sustained run of positive net absorption and rental growth, driven by the strength of Western Australia’s economy, according to a new report.
Knight Frank’s Perth CBD Office Market Report March 2023 said that over the past two years, the city has recorded 87,000 square metres of net absorption, with vacancy rates decreasing marginally over the past year to 15.6%.
Premium grade vacancy remains low at 6.6%, but 2023 is expected to see significant supply additions, with 79,000 square metres of new office space, the highest annual addition since 2015.
Growing rents
The report said that prime and secondary rents grew in 2022 and incentives have been reduced. The widening gap between premium and A-grade assets shows resilience in the premium market.
While the overall vacancy rate contracted slightly in the second half of 2022, down by 0.2% to 15.6%, over the full year, vacancy was slightly up as the completion of Capital Square Tower 2 and several refurbishments slightly offset positive absorption.
The report said this year, two major development completions are expected, with Brookfield’s new 52,000 square metres HQ and Capital Square Tower 3 (16,000 square metres). This will likely result in a slight increase in overall vacancy rates. However, limited new supply beyond 2023 is expected to enable vacancy to drift lower over time as existing A and B grade space is gradually taken up.
Strong economy
WA’s economy has been performing well, with the strongest growth in employment over the past three years (8.6%). The state has also benefited from rising bulk commodity prices and significant construction activity across various sectors. Despite emerging headwinds to national growth, WA is outperforming other states, with Perth CBD recording a high level of net absorption over the past two years.
West Perth has also experienced a resurgence in demand, with two consecutive years of strong net absorption the report said. This market has re-emerged as a viable CBD-adjacent option for many tenants, aided by parking availability and affordability. West Perth’s vacancy rate dropped substantially from 22.1% at the end of 2020 to 13.2%, with availability predominantly in B grade space.
Looking ahead, while business confidence remains subdued, recent employment growth and a tight labour market suggest continued demand for office space Knight Frank said. Limited new supply beyond 2023 is expected to lead to a steady decline in vacancy rates over the next few years, reaching around 12% by the end of 2026. However, the potential development of a further 70,000 square metres at Lot 4 Elizabeth Quay could significantly impact the projected market recovery.
