Working Near Home Spurs Strong Demand in Suburban Perth Office Markets
Strong economic conditions in Western Australia, combined with structural changes to the way people work brought on by the COVID-19 pandemic, have driven vacancies across suburban Perth office markets to record lows, according to a new study by independent West Australian commercial property information and research firm, Y Research.
Y Research’s August 2024, West Australian Suburban Office Study, which covers over 1.9 million square metres of office space across 43 suburban markets with more than 10,000 sq m in stock, reveals that the vacancy rate across Perth’s suburban office market has nearly halved – from 18.7% in March 2019 to 9.4% today.
The current vacancy rate of 9.4% is a record low for Perth suburban office markets since Y Research began tracking these markets in early 2012. The previous record low, 9.7%, was recorded in the second half of 2012.
The strong performance of suburban office markets stands in contrast to the performance of the major central markets, the Perth CBD and West Perth. Industry reporting by the Property Council of Australia highlights, as of July 2024, vacancy rates of 15.5% in the Perth CBD and 11.5% in West Perth.
Key takeaways from the Study include:
- There are wide variances in the performance of office markets across suburban Perth – there are 9 suburbs with a vacancy rate lower than 5% and two suburbs higher than 20%.
- Cockburn Central is the best performing market, with there being no office space presently available.
- Flight to quality continues to be a major trend in the market – the best performing buildings are A Grade buildings. There is less than 30,000 sq m of A Grade space available across suburban Perth.
- Amidst the housing crisis, there are over 550 former residential properties being used for office space, only 40 of which are currently vacant.
- There has been limited new supply added across suburban Perth since the onset of the pandemic – less than 100,000 sq m. Since 2019, 44.4% of that new supply has been added in just three projects: Kings Square in Fremantle, 500 Hay Street in Subiaco, and the new ABN headquarters in Leederville.
- The impact of rising construction costs is reflected in WA’s suburban office supply pipeline. Only one major project has been completed so far in 2024: Hesperia’s Murdoch Square development. Less than 10,000 sq m is expected to be completed in the balance of 2024, headlined by 1 Richardson St in South Perth and a new regional headquarters for the Department of Communities in Joondalup.
Comments below can be attributed to the Director of Y Research Damian Stone:
“After a decade of higher vacancy brought on by strong supply additions and the relocation of major tenants to the Perth CBD and West Perth, Perth’s suburban office market has emerged post the COVID-19 pandemic as the strongest of the three major office markets in metropolitan Perth.
The average vacancy rate across the 1.9 million square metres of suburban office space is just under 40%, lower than the current vacancy rate for the 1.75 million square metres of Perth CBD office space. Whilst the Perth CBD is dominated by major occupiers, the tenant mix in suburban markets is made up of small and medium sized businesses. As such, the current vacancy rate for the suburban office market is proxy for the broader health of white collar employers in WA.
Working from home was a major change brought on by the pandemic, moving from a niche offering to a Government mandate. Since the peak of the pandemic, hybrid work has become the norm, with a mix of working from home and in the office. In suburban offices, a new feature has arisen – working near home. There has been strong take up of smaller office suites (sub 150 sq m) across suburban office markets by companies that want a defined work space, closer to the residence of the company’s directors/employees. The desire to reduce commuting time – from the typical one hour to less than 15 minutes – has been a major driver of this change.
The impact of working near home is evident in the performance of near city vs fringe suburban markets. Suburbs within 5km of the Perth CBD have a vacancy rate which is 22.1% higher than suburbs more than 15km from the Perth CBD.
Affordability has been a key driver of suburban take up – the average rent across suburban office markets is down 6.5% compared to 2019. Only in the last 12-18 months have top asking rents re-surpassed $400 per sq m in suburban office markets. Given limited vacancy in select suburbs, asking rents for lower grade spaces have reached $350 per sq m. Equally, compared to recent years, there are only a handful of properties advertising asking rents below $150 per sq m.
Further pressure will come on rents in 2024/25 due to the impact of limited new supply – 2025 new supply completions are forecast to be 57.8% lower than 2024, and around 80% lower than the 10 year new supply average for suburban office markets. With market rents below the cost required to build office developments, new supply will remain constrained in the years ahead.
Continuation of positive economic conditions, and limited new supply, will likely see a further reduction in the suburban office vacancy rate and an increase in the average market rent over the next 12 months.”
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