Owners of office development sites are actively marketing to attract anchor tenants amid falling vacancy rates, a tightening of space availability and increasing investor interest not seen for a decade.
Owners of office development sites are actively marketing to attract anchor tenants amid falling vacancy rates, a tightening of space availability and increasing investor interest not seen for a decade.
Despite the positive outlook, however, analysts say that rents in existing buildings need to rise before tenants consider going to new buildings.
Rental charges for new office developments are widely accepted to be at least $400 per square metre, and while average rents in Perth’s premium buildings are currently between $320 and $350/sq m, tenants appear reluctant to pay the premium.
Development sites looking for anchor tenants are: Multiplex and Ric Stowe for Westralia Square; the Hawaiian Group and Multiplex for Bishop’s See; the Pivot Group for 100 St Georges Terrace; and the Saracen Group for Raine Square.
It is understood that tenants being approached include the State Government, National Australia Bank, BankWest, ChevronTexaco, Alinta, Qantas, and The Sunday Times.
Industry sources say NAB was close to signing on as the anchor tenant for Westralia Square but that negotiations ultimately failed.
Rupert Murdoch’s flagship Perth paper The Sunday Times is believed to be the newest contender to anchor Westralia Square.
The Sunday Times operations manager Barry Winfield said it was no secret that the paper had been looking to relocate from its current 6,000sq m Stirling Street home but, while five or six sites had been nominated, no commitment had yet been made.
NAB general manager (WA) Geoff Greer said the bank was considering four projects and had not entered into a contract.
NAB is seeking between 8,000 and 12,000sq m, although Mr Greer said rents at $400/sq m per square metre were hard to justify.
A 20 per cent increase in construction costs last year has added to developers’ cost pressures, and much of this is passed on to tenants to make projects viable.
Hawaiian general manager of property development Stuart Duplock said Hawaiian was actively marketing the 30,000 to 40,000sq m Bishop’s See proposal and was speaking to all major tenants in the market, but had not made a great deal of progress.
“We would love to get to the point of a viable project this year, but it will hinge on a pre-commitment,” he said.
Jones Lang LaSalle director of sales and investments John Williams told WA Business News three things needed to happen in order for a new office tower to be developed.
“A big tenant needs to decide to relocate, the average rent needs to increase, and there needs to be a cap on construction costs,” Mr Williams said.
“I don’t believe we will see another big premium-grade building go up in our lifetimes in Perth – they are simply too expensive.
“Anything that goes up won’t be a big building; it will be an amount of space that will be easily absorbed by the market.”
Mr Williams said the Perth market reached rents of around $400/sq m in the late 1980s and, as a consequence, several buildings were speculatively created, with the subsequent oversupply having taken 15 years to absorb.
“People have been bullish about the market lately, but developers are extremely cautious about building something speculatively,” Mr Williams said.
CB Richard Ellis senior director of office services Andrew Denny told WA Business News that while rents were rising to almost the levels needed for a new building, the greater level of services offered to tenants in new buildings remained a key issue.
He said there were significant advantages to tenants going into a new building, including greater floor efficiency, which would ultimately reduce the size of a tenancy while at the same time increasing the amount of rent paid.
“Overall occupancy costs could ultimately be the same or be reduced,” Mr Denny said.
Perth office rents have slowly bounced back from a rate of $100/sq m in the early 1990s with CB Richard Ellis forecasting average rents in 2007 to be $390/sq m for premium buildings.
“In 2005 we believe that incentives will drop off, but Perth will remain an incentive market – it has been for the last 25 years, and it suits all parties better,” Mr Denny said.
“Owners get a higher face capital value and tenants are assisted in up front moving costs.”
