Close to a quarter of the office space in Perth’s CBD is vacant and rents have almost halved, according to tenant advisory firm LPC Cresa, which said shrinking office requirements after the resources boom had left the city with an office surplus that could last for many years. The assessment, likely to be welcomed by tenants, is another setback for landlords.
LPC Cresa said Perth’s real office vacancy rate was closer to 25 per cent than the 19.2 per cent announced last week by the Property Council. LPC, which recently became part of the global tenant representation group Cresa, said the Property Council’s figures did not factor in the impending completion of several new developments including the office tower KS1 at Kings Square. LPC Cresa director David Barnes said the real CBD vacancy could be higher than 30 per cent if the calculation also included underutilised space or soft vacancy.
He said many bigger oil and gas and other resource tenants had reduced their workforces by up to 50 per cent but retained the same amount of office space, which would ultimately be either sub-leased or be used to accommodate future growth.
“We have resource clients ranging from explorers through to developers and investors, and with exploration activities all but stopped, the three-year lead time to commencement of development means there is likely to be a sustained period of oversupply of office space,” Mr Barnes said. “With the real vacancy rate around 25 per cent and showing no signs of going down over the next few years, there are abundant opportunities for tenants.
“Real rents have almost halved since 2013 and there are significant opportunities for tenants to either move to new premises or lock in to their existing premises with much more favourable rents and conditions. “Landlords are going to have to be very realistic with their rental expectations or risk missing out on tenants.”
Mr Barnes said the resources boom had not only seen a dramatic increase in the amount of space used by oil and gas and mining companies, but had also flowed on to sectors such as engineers, lawyers and accountants. He said these tenants were also cutting space. Almost every major law firm in Perth had recently divested surplus office.
“Soft vacancy will be the big unknown moving forward, with the empty desks within major firms taking many years to fill,” Mr Barnes said. “We believe that without a sustained recovery in the oil and iron ore commodity prices, the outlook is for a continuation of soft conditions with the market remaining in oversupply for many years. Realistically we could see a vacancy rate well in excess of 10 per cent until 2020 and even beyond.”