PERTH is poised to smash a 20-year record, with the most new office space across the city coming online this year thanks in part to the pending completion of the troubled Raine Square development and the landmark City Square building.
But the latest property research shows such highs will be followed by sharp lows in 2013, when completion of new office space is expected to drop nearly 90 per cent.
This year 264,338 square metres of office space will be added to the market, overtaking the previous record-breaking year of 1992, when QV1, Central Park and Bankwest Tower all came online.
Y Research’s Office Supply report shows construction of 175,841sq m will be completed in the CBD in 2012, while 30,316sq m will be completed in West Perth and 58,181sq m in the suburbs.
Y Research founder Damian Stone said the new space had all but been taken up, as vacancy rates hit record lows.
Some space is still available in the Bankwest Tower and Governor Stirling Tower, made available by the relocation of Bankwest to Raine Square and the state government moving from Governor Stirling.
Mr Stone said the office market pipeline to 2014 lacked consistency, with the amount of space coming online set to crash in 2013 and remain low until 2014, and possibly longer still.
Just over 25,000sq m will be completed in 2013 while 12,612sq m has development approval across Perth but construction is yet to begin.
The amount of office space under construction and set for completion in 2014 and beyond will dip even lower, with no developments set for completion in the CBD and only 27,890sq m set for completion in the suburbs.
Development approval has been given to 301,196sq m for 2014 and beyond but the projects are still in their infancy.
Mr Stone said the outlook was not the sign of a healthy market and construction could continue to stall because of low availability of anchor tenants in the market.
Securing a tenant before construction is most commonly the first step in development, leading to finance approval and is influential on design.
“This is the same old story with Perth, we go through booms and then nothing. Every other capital city, it comes on in constant chunks, you don’t have much variance,” he said.
“This year’s construction is the last remnants of what was funded pre-GFC. Everything built from now on is built under new funding mechanisms.
“You need high pre-commitments, asking rents are high 6s ($600/sq m) and low 7s, and just the amount you need to borrow is getting to where instead of one bank you need two and, in some cases, you need three.
“It wasn’t until vacancies hit 0.9 per cent that we saw a tenant commit in the last cycle.”
Major projects currently seeking pre-commitment are the 19,158sq m Leighton Properties/Seven Entertainment development at Kings Square in Northbridge, a 7,550sqm Leige Street, Woodlands, development by Challenger and a 5,800sqm development by Georgiou Capital in Stirling.
Mr Stone expects that with low vacancies, high rent rates and improving confidence in the economic climate, more pre-commitments will be signed. As far as the city goes, he said considering construction times in the CBD could be up to 24 months, no office space would be added to the Perth market before 2014.
“Restocking the development pipeline and turning potential development into actual development is crucial for Western Australia in 2012,” he said. “Without further supply, there is likely to be a severe shortage of office space in all major markets by the middle of 2013.
“Even if new suburban projects started construction in the short term, they would not be ready for occupation until mid-2013 to early 2014.”
The report follows Y Research’s suburban office market report earlier this year, which highlighted high vacancy rates in the suburbs compared to the city and West Perth. Subiaco stood at 10.8 per cent, Northbridge 14.5 per cent and Fremantle 19.5 per cent.
Mr Stone said the amount of development set for completion in the suburbs in 2013 would be 50.9 per cent lower than the five-year average for supply additions across suburbs.
In the past six months, 33,060sq m of new office space has been completed across 12 suburbs, with Herdsman claiming the largest addition at 12,302sq m, including the 7,488sq m Hasler Road development built by BGC Construction.
