Positive signs are emerging for landlords in Perth’s office market.
Perth’s office vacancy rate has considerable flow-on effects on the city’s commercial property market.
Represented as a percentage of the available space in the CBD’s office buildings, the figure reflects the level of confidence among landlords.
In simple terms, the lower the number, the higher property owners can charge their tenants to occupy their buildings.
The latest Property Council of Australia office vacancy report shows Perth’s office vacancy rate has only dropped 0.1 per cent, to 16.9 per cent, in the past six months.
According to industry experts, unless the vacancy rate is 10 per cent or below, the market works in favour of tenants.
What a decreased vacancy rate translates to on the ground is a reduction in incentives, which are the elements bundled into a deal from landlords to entice tenants.
The higher the incentives, the lower the net effective rent, and vice versa.
In Perth, incentives have remained relatively high in recent years, at between 40 and 50 per cent.
Given that incentives can include a range of costs, it can be difficult to work out the net effective rents; that is, what tenants actually pay.
For various reasons, these figures are closely guarded by industry.
Market rents, or ‘face rents’, are a widely used benchmark to gauge the strength of a market.
An expression of net effective rents plus incentives, market rents in Perth for premium grade office buildings sit at around $750 a square metre per annum.
As Savills national director capital markets research Chris Naughtin explained, this was not high enough to encourage new supply of office buildings.
“[There is a] gap between the economic rent and market rents,” Mr Naughtin said at the Property Council of Australia’s latest office market report launch.
“The average prime-grade economic rent is pretty well north of $1,000 per square metre, whereas the prevailing market rents [for] premium or A-grade is around $700 to $800.
“Rents need to stretch to make some of those new developments viable, so it’s highly unlikely we’ll see any new developments over the next couple of years.”
Property Council of Australia WA Division executive director Nicola Brischetto doubled down on this in her commentary on the latest office vacancy statistics.
“Perth CBD has officially entered an unprecedented drought of new office supply entering the market,” Ms Brischetto said.
“Despite only a modest drop being recorded over the past six months, this supply gap is expected to put downward pressure on vacancy rates across the city.”
In his presentation, Mr Naughtin referenced Oxford Economics data forecasting Perth’s office vacancy to fall below 10 per cent by 2030.
“That is leading to a very robust outlook for rental growth, so stronger rental growth and lower incentives,” he said.
“So in terms of the rental growth forecast, Oxford is forecasting a 3.2 per cent average annual growth in prime net rents over the five years to 2030.
“In terms of the incentive outlook, they expect incentives to fall from over 40 per cent currently to under 20 per cent.
“That would be a very dramatic change, and that would result in prime effective rental growth increasing by over 10 per cent on average over the five years to 2030.”
Industry view
Centuria Capital Group is one of the largest property owners in the CBD, with about 260,000sqm of Perth space to its name.
In conversation with Business News, Centuria’s WA office fund manager, Naomi Charlton, agreed that conditions were not favourable to bring on new supply.
“I don’t see that anyone can feasibly deliver a building in the next five years, unless there’s some anomaly in the market,” she said.
Ms Charlton said this could change if a large tenant sought a developer to specifically build them something, or if a developer delivered a building without pre-commitment from a tenant.
The latter phenomenon was common for elusive developer Victor Goh, whose AAIG delivered three buildings in Capital Square.
Capital Square Tower 3 at 1 Spring Street, for example, was built in 2024 on spec, meaning it had no leases secured from tenants ahead of construction.
That building, at 35 storeys, is now fully leased.
Industry insiders say Mr Goh may be reluctant to continue this trend, however, given actions surrounding his Lot 4 development in Elizabeth Quay.
Mr Goh obtained development approval for a $400 million glass tower on the DevelopmentWA site in 2021, but very little has occurred on the ground since.
Business News understands the developer had hoped to secure mining giant Rio Tinto for the proposed 53-storey building, but the miner decided against moving to the site.
Rio Tinto currently takes up about 30,000sqm across 17 floors at Perron Group and Frasers Property’s Central Park.
It also leases about 8,000sqm at Charter Hall’s Raine Square and has its operations centre at Perth Airport.
Dexus owns Capital Square with Victor Goh’s AAIG. Photo: Dexus
With its Central Park lease due to expire by 2030, the miner is in the market for close to 50,000sqm of space.
Mr Naughtin described Rio Tinto as a potential exception to the rule of tenants paying rents high enough for landlords to take interest in building new towers.
“Rio Tinto … [is] one of a few companies that are prepared to pay an economic rent,” he said.
“But even then, that would probably be a development of around 50,000 square metres, potentially around two per cent of office stock.
“So if that development were to go ahead, they’d be more of a hiccup, rather than a fundamental change in the vacancy outlook.”
Brookfield is a strong contender for Rio Tinto’s tenancy, with the global property fund having at least one viable option up its sleeve for the mining giant.
Having recently completed its Nine The Esplanade project on Lot 6 in Elizabeth Quay, Brookfield Properties is turning its attention to the neighbouring site.
The company has development approval to deliver a 55-storey tower on Lot 5 in Elizabeth Quay, also known as 15 The Esplanade.
Initial plans were for that building to contain a hotel, but the developer could pivot to office space if a tenant like Rio Tinto agreed to move there.
Brookfield also owns the lease, in a 50-50 joint venture with Wyllie Group, on Perth Convention and Exhibition Centre.
Plans for a $1.6 billion redevelopment of the centre were set to include an office building Rio Tinto was said to be interested in.
However, those plans were put on ice in late 2025 when the state government decided to invest the funds it had set aside for the project into hospitals instead.
Premier Roger Cook this month changed his tune on PCEC, stating he was back in talks with the leaseholders and committed to an overhaul of the centre.
Industry experts say Rio Tinto has narrowed its choice between moving to Brookfield’s Lot 5 site or extending its lease at Central Park.
Neither landlord would comment on the possible move.
PropertySolve director David Barnes, who acts as an independent adviser to office tenants, said Rio Tinto would need to make a decision fairly soon.
“It takes about five years to bring on a new building so they’ll have to decide soon,” he said.
Western Power is the other significant tenant in question.
The state government-owned utility needs to find some new space in the CBD, with its Wellington Street premises considered not fit-for-purpose after it flooded in late 2024.
Western Power is in the market for about 20,000sqm of space, with suggestions it could take up the space in Enex set to be vacated by Inpex this year.
Late last year, there was a strong possibility that Western Power would move to QV1, given there is close to 23,000sqm of space in that building.
But Business News understands it scrapped those plans, despite the landlord holding the space for the utility.
178 St Georges Terrace recently sold for $9.5 million.
One of the largest leasing transactions of 2025 in Perth was NRW Holdings’ commitment to take up almost 8,000sqm at 219 St Georges Terrace.
As the deal was under way, brokering agent and Cushman & Wakefield WA managing director Roly Egerton-Warburton said it involved some of the last pieces of contiguous space in the CBD.
“We’re at a turning point … and will see a shift towards landlord advantage,” Mr Egerton-Warburton said in November.
PropertySolve’s Mr Barnes noted that, for the time being, the market definitely favoured tenants.
“We came very close to a scenario where the vacant space of QV1 was going to be taken up by Western Power, 219 [St Georges] was taken by NRW, and Rio Tinto had lost an opportunity to go to the convention centre,” Mr Barnes said.
“So, all of a sudden, all of the better quality space in Perth was gone, and that would have had a dramatic impact on rents.
“It would have been a very sharp decline in vacancy, which would have had to have impacted incentives and brought them down.”
Centuria’s Ms Charlton agreed that contiguous space – uninterrupted blocks of space for larger tenants – was becoming more difficult to find in Perth.
“Contiguous space is one of the biggest challenges in the market at the moment,” she said.
“If you want three-plus floors together, you’ve probably got four or five buildings to choose from.”
In addition to QV1, Realside and Lendlease’s Palace Tower at 108 St Georges Terrace has a fair amount of space available.
Following South32’s move to Enex at 100 St Georges Terrace last year, Palace Tower has about 5,500sqm of space available.
Capital market
Transaction activity in Perth’s CBD has been slow in the past couple of years, with the last notable transaction in 2024.
In December of that year, Oceania Capital Group purchased 66 St Georges Terrace for $75 million from Corval.
The next St Georges Terrace transaction was the $9.5 million divestment of 178 St Georges Terrace in January this year.
Given that several office properties have been brought to market in the past two years, the subdued activity levels reflect low confidence in the market.
John Williams says he erred when he called the bottom of the market in 2023. Photo: Michael O’Brien
Property industry veteran John Williams, director of Williams Property Advisory, explained that a turnaround in vacancy rates would likely lead to more office building transactions.
“The low volume of transactions is a function of the leasing market,” Mr Williams said.
“Capital is sitting on the sidelines waiting to see that improvement before it will step in, because capital wants to see that growth.
“If you are going to invest in something, you want to be as confident as you can that you’re going to get growth in value.”
In mid-2023, as Mr Williams stepped away from three decades at JLL to run his own consultancy, he made a bold call.
“I think we will look back at June 2023 and say that was the bottom of the market,” he said at the time.
Speaking to Business News this month, Mr Williams said the market had not changed like he thought it would since that time.
“I was wrong, because it wasn’t the bottom of the market,” he said.
“When we are going to hit the bottom, I don’t know.
“Potentially we are just tracking along the bottom and have been since 2023.”
Several factors were pointing to an improving market; it was just a matter of time, he added.
“All the indicators are that we should be seeing a leasing market that’s improving,” Mr Williams said.
“Economically we are doing exceptionally well. I hear all the research houses and agents saying limited supply is going to lead to an improvement in the market, but we haven’t seen it yet.”
Investment
The buyers of 178 St Georges Terrace, SKS Group, intend to convert the nine-storey building into a 100-room hotel.
The conversion of office buildings is an increasingly common phenomenon amid rising building costs.
A classic example is in Kuwaiti government-owned St Martins Centre, the owners of which recently revealed plans for a conversion into a $250 million luxury hotel, office and retail precinct.
The long-awaited move followed years of speculation and a failed attempt by St Martins Properties to sell the seven-building asset, believed to be the single-largest landholding in the CBD.
Mr Williams said the repurposing of some office buildings made economic sense in the current market.
“It’s not out of the question, because now the cost of actually constructing those buildings is so high that the economics could work for repurposed buildings,” he said.
“Whereas before, when construction costs weren’t so high, it was easy to buy vacant land and build from scratch.”
Landlords are aware of the need to continually invest in their buildings to retain tenants.
Dexus, which ranks third on the Data & Insights commercial property owners list, owns several premium office buildings in Perth, including 240 St Georges Terrace.
St Martins Centre is set to be redeveloped into a luxury hotel. Image: Woods Bagot
Dexus head of office portfolio Wayne Hall, who works across several Australian jurisdictions, said Perth’s high office occupancy rate affected landlords’ approach.
“In Perth, in particular, we’re seeing that offices are generally occupied five days a week … we see more than the other markets that offices are highly used,” Mr Hall told Business News.
“Because it is a small market there’s real competition for labour resources in companies, and so our part as landlords is to really curate the experience that the employees of our customers have in our buildings.”
He said 240 St Georges Terrace, occupied by Worley, CBH, Macquarie Bank and DLA Piper, contained several elements designed to keep its tenants.
These include a 24-hour gym, pilates, and premium end-of-trip facilities.
