Perth’s office net absorption hits record highs since Q3 2018

The city’s absorption hit 27,200sqm in Q1 2023.

Headline vacancy in the Perth CBD increased by 0.9 percentage points (ppts) to 19.9% in 1Q23, according to JLL’s latest report. However, net absorption totalled 27,200 sqm over the quarter, the highest quarterly reading since 3Q18.

“Expansionary activity resulting from Chevron’s relocation into a new development (1 The Esplanade), as well as new business entrants into the Perth market, were significant contributors to net absorption over 1Q23. Occupier activity was predominantly led by tenants within the mining and professional services sectors.”

Here’s more from JLL:

Uptick in new office supply

One significant office development (1 The Esplanade) completed in the Perth CBD over 1Q23, totalling 54,000 sqm. The existing supply pipeline is elevated, with three projects under construction totalling 34,800 sqm. 

Other than developments currently under construction, the supply pipeline for both the Perth CBD and West Perth office market remains limited given elevated vacancy rates. Plans are approved for a further 12 projects in the CBD, totalling 309,000 sqm. Proposed new office projects are likely to require substantial pre-commitment to proceed.

Declining incentives support effective rental growth

Perth CBD prime net effective rents increased over the quarter to AUD 276 per sqm per annum (1.5% q-o-q), as incentives declined to 48.2%. Prime net face rents increased (0.8% q-o-q) to AUD 638 per sqm per annum, reflecting y-o-y growth of 1.7%.

Rising cost of debt pressures saw Perth CBD prime office yields decompress by 13 basis points (bps) in 1Q23 to a mid-point of 6.88%.

Outlook: Robust WA economy to support demand for office space

WA’s economic growth has continued to outperform the national average, driven by ongoing strength within the resources sector. With a strong pipeline of resources projects approved, demand for office space is likely to be led by the mining and professional services sector.

Economic instability from factors such as inflationary pressures and rising borrowing costs will undoubtedly reduce the attractiveness of office assets to buyers relying on leveraged capital sources. Investors are likely to be selective in terms of potential acquisitions as both buyers and vendors undergo a price discovery phase amongst shifting economic conditions.

Note: Perth Office refers to Perth's CBD office market (all grades).