Western Australia is currently experiencing improvement in economic conditions due to a rise in activity in our resourcing sector.

The improvement in Western Australia’s economic conditions are generating investment interest from both domestic and off shore investors in the Perth Market. Both domestic and international investors are recognising Perth as a counter-cyclical opportunity and are taking advantage of greater yields in comparison to the Eastern States Markets. Offshore investors are responsible for half of the total value of recorded transactions over the past 12 months.

As at September 2018, there were approximately $548 million worth of office transactions in the Perth CBD for the year. For premium grade buildings, the capital values in Perth CBD are estimated to range from $8,500 to $12,500 per square metre, for A Grade it is between $7,000 to $9,000 per square metre and for B Grade Offices the capital values are between $4,800 to $6,500 per square metre.

For the first time in over four years, the Perth Office Market has begun to improve with office transactions in the West Australian market anticipated to reach $1 billion for 2018.

A third of this number relies on the $350 million sale of the Exchange Plaza Office Tower. Other noteworthy sales of Perth office space this year include 202 Pier Street worth $125.25 million, Kings Square, Fremantle worth $190 million and the $91.3 million acquisition of 836 William Street.

Premium Grade office assets currently have a yield of approximately 6.5% whilst it is 7% for A Grade office and 7.5% for B Grade office. There are questions surrounding whether or not C & D Grade Buildings exist in the current market, as they are generally prime for development and transforming older stock into education/medical/childcare and vertical aged care facilities.

In July 2018 Perth’s total CBD office vacancy fell to 19.4% which is 3.1% lower than during its peak at the beginning of 2017. There have been strong signs of recovery within the office market over the past 12-18 months and significant tenant demand for Prime Grade office space has lowered the vacancy rate. As at September 2018, there were 128 available full floors of prime office space, this is the lowest it has been in approximately four years. The declining vacancy rate of Premium and A Grade office space highlights the tenant’s demand for quality.

The past 12 months has seen approximately 67 000 square metres of leasing activity in the Perth CBD office market. Of this leasing activity, approximately 60% of the total volume of leasing activity occurred in the West CBD precinct.

45% of the leasing transactions that have occurred within the Perth CBD have related to the mining, utilities & industry sector. While 68.5% of leasing transactions related to the ‘Property and Business Services’ sector and the ‘Mining’ sector, highlighting the growing confidence in Western Australia’s improving economy.

Net face rents in Perth for Premium Grade office space are between $600 and $725 per square metre, between $475 to $650 per square metre for A Grade office space and between $250 to $475 per square metre for B Grade office space.

Tenant demand for Prime space has increased and we can expect to see this growth continue while net incentives are expected to decrease, which will have a steady increasing effect on net effective rents. We can also expect to see a continuation of the trend of ‘Third Spaces’ which integrates co-working office space. The co-working space takes up whole floors in office buildings. Similar to the perception of ‘End of Trip’ facilities, tenants now expect co -working space in their office building. Approximately 1.2 million people worldwide would have worked in a co-working space by the end of 2018.