Perth CBD office market is continuing to improve as tenants migrate from the suburbs

“A notable improvement in the state’s labour market, new business start-ups and centralisation of tenants into the Perth CBD is expected to continue to drive the vacancy rate lower,” he said.

“Despite this, secondary vacancy is likely to remain high while prime-grade vacancy is reducing.”

Colliers International office leasing director Daniel Taylor said the CBD office market had recorded more than two years of positive absorption and some landlords were beginning to pull back incentives.

“We are also seeing the re-emergence of project space, which is further evidence of a market recovery in full swing,” he said.

“Sentiment is definitely improving, business confidence is on the rise and tenants are looking for office space on favourable terms that will allow for future growth.”

Mr Taylor said despite some withdrawn office space returning to the market, he expected the CBD vacancy would be whittled down further as surplus space was absorbed.

“While Perth is largely a resource-driven state, we are seeing the emergence of a whole range of industries looking for space in the CBD and that’s another positive sign for the office market and the WA economy,” he said.

“There has also been a noticeable increase in demand for project space, mostly from engineering firms.”

Colliers International office leasing director Dustin May said Perth’s CBD had a limited supply of contiguous office space for tenants seeking offices between 6000 square metres and 10,000 square metres across large floor plates.

“This shortage may be the trigger for leasing pre-commitments and the construction of new office towers,” he said.

“With A-grade tower 240 St Georges Terrace now almost fully leased, after being vacated in 2018 by Woodside, it’s increasingly likely there will be a pairing between Perth’s larger tenants and developers.”

CBRE’s WA advisory and transaction services office leasing senior director Andrew Denny said he expected a continual steady, but relatively modest, fall in vacancy during 2019.

“There are no new buildings due until mid-2023, over four years away. Moving forward, we believe lower incentives, as opposed to higher face rents, will be the major market movement,” he said.

“Effective rents are forecast to increase by 30 per cent in the premium grade over the next three years. This is the largest forecast effective rent growth in the country.”

Tenants were increasingly seeking quality, ready-to-go space in a prime and central location, new fitouts and sizeable contiguous space.

“Tenants are also looking at getting the best value for money in a sought-for location,” Mr Van Helden said.

“This is why the theme of centralisation into Perth CBD from West Perth should continue as rents are still low. Rents are predicted to trend higher in 2019 and onwards, so tenants are now having to act quickly in order to secure a good deal.”

Mr May said well-priced fitouts offering a convenient, ready-to-go workspace were popular.

“There’s also evidence of a generational shift at the management level impacting on office leasing and increasingly, we are working with decision makers searching for exciting and creative environments for their workplaces,” he said.

“With close to 13,000 square metres of speculative fitted out office space in the CBD, innovative ideas are required to stand out from the pack. “

Meanwhile, Savills Perth office leasing associate director Mark Stanhope said increasing investor confidence had initiated more deals amongst domestic and foreign investors.

“Savills recorded $1.17 billion worth of office sales transactions in the 12 months leading up to February 2019. Savills also recorded more than 200 leasing deals since February 2018, which shows prominent signs that the market is well into the recovery phase,” he said.

According to Colliers International, close to $1.2 billion in office assets in Perth’s metropolitan area changed hands in 2018, an increase of 44.3 per cent from the previous year.

Of the 24 building sales, 13 were in Perth’s CBD and fringe office markets.

CBRE WA capital markets head Aaron Desange said the Perth office investment market was in a strong position with demand well exceeding supply.

“Western Australia continues to be a preferred destination for both onshore and offshore investment particularly given that several Asia Pacific capital cities are close to approaching their peak in the cycle,” he said.

“This bodes well for the Perth investment sector, as buyers are increasingly looking for acquisitions in a market that it is in the early stages of a new growth cycle.”

A high depth of investment demand was likely to continue throughout 2019, as buyers chased returns that met their required hurdle rates, Mr Desange said.

“This is expected to fuel approximately $1.5 billion worth of office transactions this year, which would set a new record for transactional volume in Perth.”