Perth’s office vacancy rate has remained the highest in the country for years. There’s plenty to say that won’t remain the case for long.
WA commercial property investors are used to seeing Perth’s office vacancy rate in the double digits.
The hole in the West’s office market, left by hundreds of outgoing mining and mining-linked businesses after the last boom, has yet to be filled in the last decade. But with the activity in WA’s mining sector red hot and a range of tailwinds working in Perth’s favour, we may have seen the worst of Perth’s bulging office vacancy rate.
Q2: Office vacancy rates rose in every capital city except Perth
Across the national CBD office market, the vacancy rate increased by 1.1 percentage points from 12.2 per cent to 13.3 per cent in 2020’s December quarter, according to JLL.
Office vacancy rates in Sydney and Melbourne hit 11.9 per cent and 13.2 per cent, amidst uncertainty that business requirements for office floor space will decrease post-coronavirus.
But Perth, underpinned by positive business sentiment (perhaps as a result of post-vaccine foresight), has kept its cool and maintained a steady (albeit high) 20.0-per cent vacancy rate in the last two quarters.
The Property Council of Australia’s (PCA) most recent figures show that the Perth CBD office vacancy rate eased back to 17.6 per cent from 18.5 per cent over the six months to January, according to Property Council figures.
It was the sixth consecutive period (three years in total) that the office vacancy rate in the WA capital has fallen though it still has the highest vacancy rate nationally and more than double the national CBD vacancy rate of 8 per cent.
Perth office tenants are “safe” tenants
Across the country, businesses are hanging on by a thread. COVID-19 has shaken the foundation of Australian SMEs (Small-to-Medium Enterprises) and put more office tenants at risk of going under than at any other time in the last century.
But according to Colliers International and Y Research in a recent analysis, these “at risk” tenants are mostly found on the east coast, particularly our flagship states Melbourne and Sydney. Perth, on the other hand, only has a small number of these struggling tenants in their portfolio. The majority are labelled “safe” tenants.
Colliers’ analysis showed that 63 per cent of Perth’s tenants are ‘safe occupiers’ and are not at risk of collapsing under the pressures caused by COVID-19. This is well above the rates of other capital cities.
Perth businesses out of survival mode – into recovery mode
Aside from last week’s ‘flash lockdown’, Perth has been a picture of normalcy while COVID-19 plagued the rest of the country (and the rest of the world).
While some businesses in Melbourne and Sydney have sights set on survival, those in Perth are already in recovery mode. It’s no longer about surviving COVID-19. It’s about thriving post-pandemic.
Many office occupants are finding new ways to ensure their workplace remains healthy. This may mean incorporating flexible and work-from-home arrangements, while still paying full rent to landlords.
Physical office space is central to corporate culture
Though some forecast a reduction of as much as 10-15 per cent in annual net absorption in Australia’s office market as work-from-home rates increase, there is a louder call by business owners to preserve company culture.
Those businesses who have survived COVID-19 put team culture and a centralised team location as crucial to their future success, as shown in a recent survey by the Property Council of Australia (PCA).
According to the PCA, office space is likely to remain highly relevant due to the importance office occupiers and owners place on a central location for their workers.
Of the respondents in PCA’s survey, 96 per cent see the role of physical office space as key to creating a corporate culture. Many say the physical office environment is a crucial driver of job satisfaction, productivity, and collaboration.
But more than this, the physical office is a place for mentorship and on-the-job learning. To teach the next generation to lead effectively, business leaders and mentors must show them the way, rather than merely tell them.
The combination of ‘safe’ tenants, office relevance in today’s white collar world, and Perth’s burgeoning business and mining activity, points not only to the city’s office vacancy rate finally hitting the ceiling. But perhaps about ready to drop to levels seen pre-mining bust.
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