In its June 2017 Office Market Report, Investa says the Perth CBD office market is finally emerging from the most severe cyclical downturn since the early 1990’s. Following five-years of deteriorating market conditions, leading indicators of market activity now present a moderately optimistic outlook for the Perth office market in the coming years.
The report states that the brunt of the headwinds to WA economic growth from weaker mining investment have now passed, while WA business conditions and confidence have picked up in recent months. In particular, greater confidence in the business outlook has supported white collar employment growth and underlying demand for office space.
David Cannington, Head of Research and Strategy, Investa said: “The outlook for Perth CBD office property has improved through the first half of 2017. Fundamental drivers of activity are indicating that the market is finally emerging from five-year cyclical downturn. Net absorption of Perth CBD office space has been increasing since late-2016, while there is very little new development for the market to absorb for at least the next five years. We expect Perth CBD office vacancy rates to gradually decline in the coming years.”
In addition to stronger demand for Perth CBD office space from office-based employment growth, there is also a ‘flight to quality’ amongst tenants, with many upgrading from lower grade to higher grade office space on the back of improved business conditions and attractive prime office rents and lease incentives.
This trend is creating a ‘two-speed’ office market in Perth, with the prime office segment leading the earlycycle recovery while secondary office continues to weaken.
However, in contrast to the usual sharp cyclicality of the Perth office market, the current recovery will be a longer, more moderate process. The direct employment gain to office demand from the resources and energy sectors is expected to be weaker through the production phase of the commodity cycle. In addition, the recent improvement in business confidence is still some way off activating a pick-up in non-mining business investment, including office development.
Mr Cannington said: “While the Perth CBD office market has turned the corner, the path ahead still presents a number of challenges. The recovery of the Perth CBD office market in the coming years will be more moderate than in previous cycles.”
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