- There is a wide vacancy spread between prime (15.6%) and secondary (23.2%) grade assets.
- Flight-to-quality and sustainability remains top priority for tenants.
- Industry predicts bright future for Perth office market.
JLL Research’s latest quarterly report found that Perth’s CBD was Australia’s most steadfast office market across the 2022-23 financial year, with 66,600 square metres of net absorption, roughly thrice more than the 20-year average.
CBD growth motivated by flight to quality trend
According to JLL figures, Perth’s CBD office vacancy rate shrank to 18.5%. However, there was a significant discrepancy in the vacancy rate between prime and secondary-grade assets, which were 15.6% and 23.2%, respectively.
This gap between demand for prime and secondary-grade assets can be explained mainly by the flight-to-quality trend. Post-pandemic, companies have realised that top-grade office spaces in good locations with various amenities are crucial to attracting talent back into the workplace and improving productivity.
The research uncovered some interesting rental growth trends within the Perth CBD and West Perth.
Face rents grew in Perth’s CBD office market, indicating restored positive market sentiment and elevated demand for prime office space.
“This uptick in rental rates is indicative of renewed interest from businesses seeking a strong foothold in the vibrant business hub of Perth,” said JLL managing director and head of property and asset management, Angelo Amara.
Sustainability is a top priority for tenants
Furthermore, JLL found that corporations are increasingly prizing environmental, social and governance (ESG) requirements when hunting for offices, a finding that is corroborated by other research, as sustainability has become a top priority for companies and everyday Australians alike.
“Sustainability is becoming imperative for businesses, and the integration of ESG principles is increasingly being incorporated into lease negotiations, setting a precedent for responsible and forward-looking office spaces,” Amara said.
The main force behind the robust office demand is the mining sector, which is responsible for a substantial part of Western Australia’s economy and is actively involved in the state’s office market.
“The growth of the resources sector is driving demand for office space and having a positive impact on the overall vacancy rates,” Amara added.
“Long-term projections present an optimistic outlook for the Perth CBD office market, bolstered by the ongoing strength within the resources sector,” said JLL head of office leasing, Nick Van Helden.
“The consistent performance of this sector is expected to fuel net absorption and maintain the vacancy rate outlook. Additionally, the State Government’s active engagement is playing a pivotal role in shaping the landscape and influencing the market dynamic.”
West Perth office market rebounds
West Perth’s office vacancy rate improved considerably over the second quarter of 2023, falling to 14.8% from the 21.3% recorded at the same time last year.
“This decline in office vacancy is a positive indicator of the West Perth office market recovery. Despite challenges from the pandemic, the West Perth office market is demonstrating strength and resilience, pointing towards a positive trajectory,” Van Helden comments.
Propped up by the capital city’s healthy and unwavering resources sector, JLL believes that Perth’s long-term absorption and vacancy rate will continue to improve for the foreseeable future. Indeed, other industry heads have also expressed an optimistic outlook for the future of Perth’s office market.