Perth prime office rents have grown at more than three times the national average over the year to September, according to the latest CBRE national office market report.
Spurred on by better economic growth and resources-led demand for office space, Perth net face rents have risen 12.9% between September 2011 and September 2012 compared with 3.4% increases in Melbourne rents and 3.2% increases in Sydney rents over the same time frame.
The national average growth rate for major capital city office rents over this period was 3.9%.
In a previous update, CBRE said mining giant BHP Billiton accounted for around 43% of the total net office space (115,000 square metres) leased over the first six months of 2012 with the premium Perth office vacancy rate currently well under 2%.
Net face rents in other major CBD office markets – Brisbane, Adelaide and Canberra – have been flat over the 12 months to September.
Net face rents refer to the quoted rental rate (exclusive of any negotiated or offered discounts) and exclude building outgoing costs.
Looking ahead over the current financial year to June 2013, Perth is again expected to be the top performer with projected net face rental growth of 8% with Sydney (3%) and Adelaide (2.7%) performing better than Melbourne (1.5%).
Nationally, CBRE is forecasting rental growth to soften over the course of the 2013 financial year while CBD office capital values are expected to hold firm due to the uncertain economic outlook.
CBRE’s Australian head of research, Stephen McNabb, says there are both cyclical and structural factors that are resulting in subdued tenant demand relative to historic averages.
Cyclical factors include the two-speed economy, which has headline GDP growing at a 3.7% but according to McNabb “largely reflects significant growth in engineering investment activity supporting the mining industry”
“The broader economy has been growing at well below trend rates and forward indicators such as job vacancies, below average consumer and business confidence, and sluggish credit growth suggest that the economy will continue at a similar pace in the next 12 months.”
Structural factors include an increasing shift towards activity based working (work teams that don't have allocated work stations) which is reducing employee floor space ratios.
CBRE regional director of office services, James Patterson, says Perth remains the standout in relation to prospects for future rental growth, given the strength of the local economy and continued resources sector investment.
“Sydney is more heavily aligned to finance and insurance tenants who have been experiencing pressure on revenues and are aggressively managing expense growth and employee head countsPatterson said.
“The Victorian economy has also been slowing and employment growth is easing after a period of strong growth, which had been spurring demand for office space in Melbourne,” he says.
CBRE also highlights a shift in the growth prospects for the other resource-driven capitals of Adelaide and Brisbane.
“The Brisbane market has also been subdued, given weaker economic growth of late as a result of resource sector uncertainty and space consolidation by the State Government, although the expectation is that growth will gather momentum going forward,” says Patterson.
“Falling commodity prices have also impacted on markets such as Adelaide, as highlighted by the shelving of BHP’s Olympic Dam expansion, which would have provided a significant boost to the South Australian market.”