Savills : The reality of the Perth CBD office market requires strategic thinking

Perth CBD office owners must adjust to the reality of high vacancy and need to be thinking strategically about the market positioning of their assets.

According to the latest Property Council of Australia figures, Perth's CBD vacancy rate rose to 22.5% in January 2017, or 396,369sq m of vacant stock.

James Phelan, Savills Office Leasing Executive, said landlords have to be taking proactive steps to navigate their way through such a market.

He said owners need to think strategically about the market reality of high vacancy, subdued demand, lower rents and significant incentives.

'It would be naïve of owners to think their asset is immune,' he said. 'In the current market, tenants are well informed and understand the opportunity. Owners must be proactive in managing their assets.'

Savills believes the Perth CBD office market will stabilise over the next three years based on a limited future supply pipeline. There is currently only one major office building under construction in the Perth CBD (Capital Square 55,000sq m). Seven projects were completed during 2015/2016 (circa 150,000sq m) closing out the current supply cycle until 2018.

Mr Phelan said it is clear that a two-tier market has now emerged in Perth. There has also been a large influx of tenants from the metro market, particularly in the 250-800sq m space, attracted to affordability of being positioned in the CBD.

'While a recovery is imminent for premium grade stock, given the continued 'flight to quality', the gap between prime and secondary assets is broadening,' he said.

According to Savills research, there are 1,051 tenants in the Perth metro market that have lease expiries in the next three years.

Mr Phelan said proactive owners of office buildings in the Perth CBD need to be actively targeting such tenants as well as maintaining close and healthy relationships with their existing tenants.

Other steps that owners can take to mitigate risk in the current market include: thorough reviews of competing stock; ensuring high quality inspections, service and marketing; capitalising on the competitive advantage of their building such as location, amenity and services; investigating the potential for commissioning speculate fit-outs; and offering hidden incentives such as early access etc.