Perth’s office market ready for a rebound
by Eliza Owen (theaustralian.com.au – 21 September, 2017)
With the downturn easing, is it time to get confident in Perth’s office market?
The latest national accounts data indicates that the West Australian economy is on the rebound. Each quarter, the Australian Bureau of Statistics releases state final demand data alongside national GDP figures. SFD is the value of goods and services sold to the public sector, private sector and households in a state.
While still negative at minus 10 per cent, WA’s annual growth rate is higher than in March when it was -10.7 per cent. Coupled with a ramp-up in public expenditure, growth rates of domestic demand in the state are starting to lift.
This could be good news for the commercial real estate sector. According to the Property Council of Australia’s July Office Market Report, Perth’s CBD office market vacancy rate fell for the first time in five years.
The amount of vacant office space in Perth dropped by 1.4 percentage points in the six months to July, with the PCA also reporting that net CBD office demand increased by over 20,000sq m for the half year. This rise in demand is three times the historic average and suggests that tightening vacancy rates stem from local business expansion, or businesses being drawn to the city.
However, Perth still has the highest capital city office vacancy rate at 21.1 per cent, or more than a fifth of its office space empty. Australian CBD office vacancy is less than half the current Perth rate, at 10.2 per cent. The end of a one in 100- year mining boom, cemented by negative demand shock from China, drastically reduced demand for office space in the Perth CBD.
Is it really time to show confidence in Perth’s office market? Looking closely at the private sector SFD figures, there are some areas of demand on the rise. Cultivated biological resources (beef, cheese and wine etc) increased 4 per cent, and expenditure on intellectual property products was up 2 per cent. Commodity values partially recovered in the past year. Iron ore, which in 2016 accounted for 57 per cent of the value of commodity sales, rebounded about 22 per cent in value in the year to September, despite heavy falls earlier this month.
Perhaps the most important, highly correlated statistic with office demand is employment growth. According to the most recent data, the seasonally adjusted unemployment rate in Western Australia rose 0.4 percentage points over the month to 5.9 per cent in August, despite following a downward trajectory in the past year.
Importantly, Western Australia has seen a rapid rise in full time jobs in the year to August. The latest ABS seasonally adjusted employment figures show full-time employment was up 4 per cent in the last 12 months. This compares to annual full-time employment growth of 3.1 per cent across Australia.
Assuming the economic environment is stable enough to nurture private investment, the next six months could see further office demand across Perth.