Has there been a better time to be a tenant in the Perth CBD market? Just over nine years ago, the Perth CBD vacancy rate was 0.1 per cent. In June 2017 the vacancy sat at 22.7 per cent, with over 400,000 sqm of vacant office stock. Some of the factors that led to vacancy increasing over this time include:

• Office stock increasing by 35 per cent since 2007
• Iron ore prices falling in 2012, leading to the contraction of mining/engineering firms
• The end of the construction phase of large resource projects in WA
• The increase in efficiency in office space usage

As a result of these changes in the market, prime gross effective rents have fallen over the last 5 years (lowest since 2006), while prime incentives average almost 50 per cent.

Looking at efficiency in office space use, we determined a workspace ratio (WSR) for the Perth CBD using occupied stock and white collar employment data. In 1987 there was approximately 21 sqm of office space per worker in the CBD. In 2017, this has reduced to 14 sqm per worker. Improvements in technology, hot-desking and activity-based working have all contributed to the more efficient accommodation of office workers.

The implication of efficiency gain is that a hypothetical 100-person office in 1987 would have a rent bill of approximately $576k p.a. and this has risen marginally to $620k p.a. at today’s rents and WSR after 30 years.

So in real terms (after inflation averaging 2.9 per cent p.a.) tenants are paying much lower rent today, and rent as a proportion of revenue is likely much lower.

Lower rents, but are tenants locking in favourable terms for quality property?

The answer is clearly yes, but large tenants are quickly becoming constrained in terms of available options to upgrade. There are now limited options available for larger tenants above 1,000 sqm seeking contiguous space in a premium grade building.

Multiple larger tenants have used the opportunity to secure new premises in premium buildings towards the end of 2016 and into 2017. This has seen the premium grade vacancy rate tighten consistently over the last 12 months, to below 10%.

On the other hand, for a sub-500 sqm tenant seeking office space it’s a different situation. There’s an abundance of choice, across a range of premium, Grade A and secondary buildings and locations. Those looking to upgrade or reduce costs have a great opportunity to do so within the Perth CBD.

Proactive landlords are also increasingly offering split floors, or speculative fit outs in order to attract smaller tenants. This is an opportune time for tenants in suburban office locations, who may have been priced out during the peak of the market, to move operations back into the CBD.

As a large occupier looking for space, the process may be lengthier, and timing is likely to be a large influencer in relocation decisions. However, for smaller occupiers now is the time to look at your office space requirements and take advantage of market conditions.

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