The Perth CBD office vacancy rate continues to climb due to negative demand for office space and more new office supplies. However, a lack of new office supply in the pipeline, will help to stabilize the key CBD market in 2017.

The Property Council’s latest Office Market Report found the Perth CBD office vacancy rate rose from 21.8% to 22.5% during the six months to January 2017. Nationally, the average vacancy rate remained steady shifting slightly from 10.45% to 10.5%.

“Perth is near the end of a decade-long new office supply pipeline, which has contributed to the high CBD vacancy rate.  No major office project is due to come on-line in 2017.  In 2018 and beyond the only committed new construction in the medium term is the 48,500sqm Capital Square project,” Property Council WA Executive Director Lino Iacomella said.

“More suburban tenants are moving to the CBD attracted by competitive rents, however this was offset in the last six months by existing tenants reducing their space needs resulting in overall negative net demand for Perth CBD office space of -12,004sqm.

“In spite of the high vacancies across the board a two tier office market is emerging in the Perth CBD with positive net demand for premium space while all other grades experienced negative net demand for office space.  The premium office vacancy rate edged down to 16% while the vacancy rates for all other sectors rose, including A grade (20.6%), B grade (30.3%), C grade (21.3%).

“The pause in new CBD office supply in 2017 removes the major contributor to increased office vacancy rates in Perth and will give the office market an opportunity to stabilise over the course of the year.

“We can expect the focus of construction activity in 2017 to move to building upgrades and re-adaption as older buildings face the pressure of much higher vacancies and the competition from new buildings in the Perth CBD.

“While the Perth CBD office market is stabilising, the vacancy in the city’s second biggest office market West Perth continues to rise, from 14.8% to 17.9% in the six months to January 2017.  This was caused by large negative net demand for office space in West Perth in the last six months, continuing a trend over the last year.  There is no new office space expected to be built in West Perth in the medium term,” Mr Iacomella said.