Perth’s CBD Office Market Review: Q1 2024

As West Australia’s economy continues its upward trajectory, the first quarter of 2024 reflected surging demand and resilient rental trends for Perth’s CBD office market, particularly for its higher-end stock.

While the rest of the country is suffering from a so-called “global office crisis”—seeing office buildings repurposed or in threat of demolition—Perth has an influx of institutional investors vying for the little premium stock available. The city is truly running its own race.

There’s plenty to be excited about for WA commercial property investors with a foothold in office real estate. But as always, the forecast is cautious, with factors such as softer commodity prices and the ripple effects of higher interest rates influencing the pace of growth (despite the latter expected to drop before year’s end).

With the help of CBRE’s Perth CBD Office Q1 2024 report, let’s see what happened in and around Perth’s office market in the first three months of 2024—and what’s ahead.

Leasing activity

CBRE’s insights show Perth’s CBD experienced a notable rebound in leasing enquiry volumes during the first quarter of 2024. After a relatively slower period in the final quarter of 2023, total leasing enquiry volume surged to approximately 77,100sqm, marking a significant 74 per cent increase quarter-on-quarter.

That said, leasing volumes are down 35 per cent year-on-year, after the record levels achieved early in 2024. This was no surprise.

The deals were predominantly made in the prime market, with Premium, A+ and A premises making up 86 per cent of the deals by number. Secondary grade buildings made up only 14 per cent, showing the market’s current preference for higher-quality stock.

And the market’s not just seeing a ‘flight to quality’. A ‘flight to centre’ continues as more suburban occupants look to take up residence in CBD premises. 29 per cent of new lease deals in Q1 saw new tenants make this move.

Rental trends

Despite fluctuations in leasing activity, prime CBD net face rents remained resilient, holding steady quarter-on-quarter at $684 per sqm, marking a notable 4.4-per cent increase year-on-year.

Secondary net face rents held as well, seeing no change quarter-on-quarter by maintaining at $461 per sqm. That reflects a modest 1.2-per cent increase during Q1 2024 compared to the same period last year.

Upcoming developments

Simply put, very few developments are on the pipeline for Perth’s office market.

Capital Square Tower 3, spanning approximately 13,700sqm, is slated for completion in the second quarter of 2024. Meanwhile, refurbishments at key locations such as QV1 and 186 St Georges are expected for completion soon.

But as far as development is concerned, that’s all we’ll see this year. Mostly refurbishments. As we’ve shown in our free white paper on Perth’s CBD office market, this was expected and will not alleviate the demand pressures placed on the city office market.

Given this very limited supply pipeline, a separate report (from Knight Frank) tips the vacancy rate in Perth’s office market is projected to drop to around 12 per cent by 2026 (currently at approx. 15 per cent).

Transaction activity & yield trends

Despite the activity in the leasing market, the first quarter of 2024 saw no office transactions in Perth’s CBD. This stagnant transactional activity, coupled with market dynamics, had a reasonable impact on yields.

Prime indicative yields witnessed a modest 8-basis-point increase quarter-on-quarter, averaging at 7.26 per cent, while secondary yields remained unchanged quarter-on-quarter, maintaining an average of 8.00 per cent.

What lies ahead

Glancing in the rearview mirror, the first quarter of 2024 portrays a mixed picture for Perth’s office market, characterised by a rebound in leasing enquiry volumes, stable rental rates and significant upcoming developments. But what’s ahead of us?

Those who’ve read our report on Perth’s CBD office market will know how important it is to separate the west’s market from the rest of the country. Because, frankly, Perth runs its own race, with CBD assets in high demand from institutional investors and the like. Demand is firing and supply is about to fall off a cliff. The outcome for those with a relevant, well-located Perth CBD office property in their portfolio? Well, prosperity is a word that comes to mind.

Want more info on the Perth CBD office market? Check out our white paper on The True State of the Perth CBD Office Market. It’s a free white paper on something national headlines won’t tell you: how Perth’s CBD office market is outperforming the rest of the country in 2024.