OMR Opinion: The devil is in the detail
September 7, 2022
Earlier this month saw Graham Postma, Savills National Head of Leasing present the Mid-Year Property Council, Office Market Report and it showed some statistics on the current state of the Perth CBD, West Perth and National Office Leasing vacancy rates that were mixed news.
Perth CBD numbers & trends
Perth CBD saw an increase of 0.8% in vacancy from 15% in January to 15.8% in July. Many in the city have taken that increase as a bad sign for the Perth market. But we can’t look at this without putting into context that this small increase hides positive news for the activity in Perth over the last 18 Months.
As they say in business, ‘not everything that counts can be counted.’
These isolated half-year numbers do not show the substantial amount of office space that was taken off the market over the last 24 months due to the pandemic or due to refurbishment and is now office space that has come back to the market.
There still was a high number of transactions that occurred over the past 6-12 months in the CBD which showed activity has not slowed down but ramped up.
B grade buildings in the CBD have the highest amount of vacancy across the grades (Vacancy Rate: 23.2%) which shows that the market is demanding properties that deliver the tenant experience perspective that a Premium or A grade building would offer (Vacancy Rate: 4.8%).
B grade & C Grade building owners are at a point now of either joining the trend of refurbishing and giving a top end tenant experience from the front doors or risk their tenants looking at other buildings or even at other alternatives. (Hello Liberty!)
With a further 25,000+ sqm of non-committed space due for completion to the market of Premium Grade office space in the next 6-12 months, it will be interesting to see what these tenants and owners in the B Grade market decide to do. Will tenants wait to see if their landlord adopts a refurbishment of the B Grade building? Or will they look for fresh, new, modern, exciting space to entice the staff members back into the office on a more regular, flexible basis.
West Perth numbers & trends
West Perth has again seen another decrease in vacancy, dropping below Perth CBD for the first time in a long time and is now sitting at 15.3%.
Again, it’s the B Grade market hurting these numbers with 17.4% vacancy compared to 12.5% of A Grade. No doubt there is a lot more stock in West Perth that is B Grade, but you cannot go past the facts that there have been landlords who have delivered a refurbished property to entice tenants back to West Perth. By doing this, West Perth is attracting the tenants it lost over the last 5 years to low prices and high incentives in the CBD as well as the need for car bays allocations for their staff members, perhaps sick of wearing a mask on public transport. Has anyone else noticed the freeway traffic over the last 6 months has increased?
Our numbers and trends
Liberty has also seen a huge uptick of enquiry and tenants choosing the flexible or hybrid model for their business. Our CBD location at 197 St Georges is at 90% occupation and 37 St Georges 90% occupation. In West Perth, the 1060 Hay Street workspace is at 95% occupation, and Outram Street at 85% occupation.
There was a significant uptake in businesses looking at serviced offices as an option to consider now. For three reasons:
Firstly, tenants are starting to think outside the box from traditional spaces, “what are our options” and “we don’t want to be locked into a long-term lease” are common phrases being used.
Secondly, a desire for quality spaces for staff to work in. From front door to sitting at their desk and other features that make employees want to come back into the office.
Finally, flexibility. Whether they are growing, shrinking, needing short term, lower financial risk, and no bank guarantees etc. All of these are seemingly what tenants are starting to think about more as there is a shift from the bleak days of COVID and what it meant for their leases.
It seems as if ‘Serviced’, ‘Flexible’ or ‘Hybrid’ are no longer dirty words and tenants are open to being educated on the differences financially between a traditional office lease versus a hybrid arrangement with a flexible workspace lease.
Taking also into account the delays for material and construction, we have seen several tenants look for a home as they are effectively becoming homeless.
We see the Perth market in a strong state that should be looked at in a positive manner.
We should also keep an eye on new office supply in the pipeline for the next 2-3 years, the refurbishing of buildings being taken off the market, and the growth of tenant-focused workplace design. So don’t let a headline rise in the CBD stats mislead you, things are looking rosy for the leasing and serviced office industry. We look forward to the numbers In January.
Dan Clarke, Head of Commercial at Liberty