Grass shoots for CBD office

Samantha Reece of PropertyESP attended the Property Council’s Office Breakfast for 2017 this week.

It was pleasing to note that the statistics and panellists were united in their views on the future for Perth’s CBD office vacancy rates.

While the overall vacancy rate is relatively high, in January the CBD showed its first positive sign of recovery in five years.

And while the current market has been touted as one of the worst, we were reminded that in the 1990s the office space vacancy peaked at 31%, considerably worse than the current 22.5% vacancy rate.

While the CBD is showing promising signs, the West Perth market in contrast is still experiencing some challenges with the vacancy rates growing by 3.1% since June 2016.

What is more interesting though is that the vacancy rates are worse for B, C and D grade properties, with vacancy rates peaking as high as 37.5%.  What we are seeing is a flight to quality as companies are able to secure Premium and A Grade at highly competitive prices.

The panellists also made it quite clear that now was the time to strike any deals for office leasing.

With major mining companies now removing their sublets from the market (30% reduction), the CBD is beginning to see a retraction in vacancy rates and a sense of optimism.

Predictions are that the vacancy rates will be at 17.6% in the CBD by 2020 with only one more building to come to market in the next four years.

There is a sense that by 2021 Prime office vacancy will be at 13.8% while secondary stock will be more like 23.6%.

With 20 major office refurbishments already in the pipeline and the proposed World Trade Centre, the face of Perth is about to undergo a transformation which will shape our City for the next 15-20 years.

And while mining has come off the boil somewhat, the CBD is now becoming the preferred location for second tier mining companies, legal and accounting firms who are relocating from the suburbs and, alas, West Perth.

There was a concession as well that the core investment that the State Government has made over the last 5-6 years with Elizabeth Quay, Waterbank and Northbridge Link, has set the City up for expansion in all these directions.

Perth is evolving and is now home to global companies such as Woodside, BHP, Wesfarmers and the soon World Trade Centre – and that is a fabulous advancement!

We keep talking about an era of disruption and we have certainly witnessed that on the global political level.  In regards to Perth, now is definitely the time to hang on, but also to think outside the box.

Old office will undergo upgrades, there will be an influx of workers into the CBD and perhaps West Perth will become more residential based?

Regardless – now is the ideal time for action!

Perth now steps into new era

PropertyESP attended the Property Council lunch with The Lord Mayor Scaffidi this week where the topic of discussion was the newly introduced City of Perth Act.

Despite the lack of direction with Council amalgamations, it is pleasing to see that the City of Perth has at least been able to place itself strategically.

The City of Perth now includes UWA, QEII Medical Centre and Royal Perth Yacht Club, providing the City with the opportunity to develop a Medical Research Campus on par with the Texas Hospital Campus (which includes 21 specialist hospitals).

The Mayor also spoke about strengthening relations with Sister Cities as part of a tourism strategy and the desire to attract campuses such as the Curtin Business School to the CBD. The recent LNG 18 Conference attracted 3500 delegates and it is these kinds of events that WA needs to continue to secure.

It was also recognised by the panel that most uni students now prefer to live in the City rather than on campus and this evolving trend will provide increased opportunities for business.  With this in mind the Mayor is keen to promote Perth first and then education second- in order to further build this economic base.

Attracting overseas students no doubt also attracts their families and it is this leverage that both the Mayor and Premier wish to maximise in the near future.

The panel also discussed that with Perth office rents at highly attractive rates, there was a movement of businesses from the suburbs into the City.  This flight to quality will undoubtedly have a trickle-down effect for other office sectors.

The Mayor also emphasised the need to increase the population within the CBD to attract overseas businesses that were seeking a critical vitality.   Eight of the nine sites at Elizabeth Quay have been taken up and this will further add to the new infrastructure investment that we have witnessed over the last couple of years.

There is a sense of purpose and plan with the City and this is further echoed by the current Government.

We at PropertyESP are hopeful that with the focus on the same outcomes, that this transition and vision will in fact become a reality for Perth and greater WA.

WA will weather 2016 and succeed

Samantha Reece attended the Property Council’s Australian Property Index breakfast held at Lavan Legal’s offices on Thursday.

Speaker Anthony De Francesco of MSCI spoke about the overall Australian market before then breaking down to WA on the basis of residential, retail, industrial, commercial, healthcare and tourism growth.

What was interesting was that from December 2014 – December 2015 all these sectors posted growth across Australia.

In particular Anthony spoke about the increase in overseas investors that were fuelling large asset purchases. He explained that it was Australia’s yield plus the cost of capital, which all contributed towards ongoing overseas investment.

However, looking at a state by state analysis it is clear that WA and QLD are tailing the other states and in particular NSW and Victoria. But it was also noted that just two years ago, it was the reverse.

When the rest of the States were experiencing a GFC – WA was not – but our shortfall was that we didn’t highlight this fact and hence create a mini boom, as the likes of which we have just witnessed in Sydney.

In the commercial sectors Perth is certainly suffering an oversupply. With Prime CBD sites we are seeing vacancy rates sitting at 17% when the average is 7% and vacancies for Secondary CBD sites are sitting at 22% when the long term average is 12%.

However on the upside – the retail sector certainly is showing signs of growth in WA and that is because for so long there have been caps on floor sqm and these are now lifting. As a result the retail sector is playing catch up with the residential population growth we have witnessed over the last 4-5 years. And this population growth is anticipated to continue – albeit at a slower rate.

By far it is evident that residential property growth has significant flow on effects with other sectors – especially in retail with household and white goods – and in the East it is this activity which has propelled the rest of the economy.

In terms of what action can be taken here in WA – it simply is a matter of supply and demand.

As Anthony stated, if there is an oversupply of commercial offices, then consider turning some of these into residential. And that is the key for the next 12-18 months – being flexible so as to ride out this current cycle.

There are plenty of upsides to the WA market and this current status will allow for upgrading of old office stock, introduction of premium hotels (which should attract the overseas tourists) and an expansion of the overseas student market.

The fact is, private enterprise will need to invest, but this is in keeping with our current revitalisation and will certainly leverage Perth even further as a city which has finally found its vibrancy.

Perth and WA have benefited from unprecedented capital investment and now it is essential to keep this wave moving so as to counter balance the adjustments we are witnessing in the mining sector.

But if we all stay focused on action, then this should be an easy task to fulfil.

So what is the outlook for 2016?

Many of you will be aware that Samantha Reece is moderating the 2016 Property Council Outlook Lunch on 19th February.

This should be an interesting session dealing with office, retail, industrial and residential.

2016 has already started with a mixed bag of emotions, with some banks predicting a 3-5% property price adjustment and even going as far as to use the word “recession.” On the other hand we are also hearing from some sectors of the property industry that sales have started well in 2016 (compared to YTD) while others are predicting this will be a year of stabilisation.

We recently received the latest edition of the Committee for Perth fact sheet and as always this does provide a great deal of clarity.

Sure in 2014/2015 the mining sector shed 12,900 jobs but our employment rate still grew 1.1%.

And while Western Australia has the fastest growing economy, it is the ranking on business investment (which was down by 12.3%) and unemployment (now at 6.3%) which appears to be our downfall. Overall WA was ranked 5th nationally by CommSec’s State of State Report.

And while population growth in 2013/14 fell from 2.6% to 1.9% it is still expected to recover to 2.2% in 2017/18.

But regardless of these stats, the State still accounted for 26% of Australia’s business investment in 2014-15. And furthermore in November 2015, WA accounted for 56% of the value of Australia’s resource projects under construction or committed, according to the Office of the Chief Economist.

And in September 2015, there was $171 billion worth of resource projects under construction or committed in Western Australia and a further $110.4 billion under consideration, according to the Western Australia Department of Mines and Petroleum.

This in turn is matched with $24 billion of State Government investment which includes Perth Stadium, Perth City Link, Elizabeth Quay and Perth Children’s Hospital, to name just a few.

However what is most concerning is that across a range of goods, Perth is still the most expensive city in Australia and New Zealand, ranking alongside Tokyo, New York and Paris in overall prices.

With the mining sector certainly reflecting a significant adjustment in 2014/15, WA has followed suit and it just demonstrates how lax we have been, as a state, to actually utilise the boom time to grow other industries so that we are more sustainable.

But this also indicates that WA is going to have to focus on business investment and think outside of the box in order to leverage ourselves into a more positive economic position over the forthcoming 12 months.

There are certainly still plenty of positive signs, but take heed, if you continue to do business as usual – despite these indicators – you will undoubtedly suffer. However as with all challenges, often companies that are innovative come to the fore and we are seeing that on a daily basis.

There is no doubt that this will be the year to invest, and as our data shows if you choose close to a major piece of infrastructure your capital returns will defy the overall Perth median – and let’s face it, there are plenty of infrastructure projects to choose from thanks to State Government and private investment.

Perth is evolving and as they say – no pain no gain. Just make sure that you are prepared to maximise on these changing economic conditions so that you can be ahead of the pack!

For a full copy of the Committee for Perth fact sheet click here:

WA Budget sustains the state

Yes this is another commentary about the State Budget, but unlike the media, I believe that the dynamic Mike Nahan and the Barnett Government are in fact taking the right steps to move WA’s economy ahead.

The Government is in debt by $2.7 billion and while some people may appear aghast, I believe that sometimes you have to go into debt in order to take your business, or in this instance the WA economy, to the next level.

Quite frankly when the rest of the country was having a “GFC” WA was having an iron ore boom and I believe that the Government did the right thing by taking the revenue from this “boom” and spending it in WA, which ultimately bolstered the economy.

But unfortunately with mining, it is cyclical, and as you would expect, with the recent drop off in iron ore prices, the Government is feeling the pinch. So one strategy is to dispense with aging assets – especially, before they need further capital works, such as the Fremantle Port and that is the tactic that the WA Government has taken.

Basically they have decided to wear the deficit, rather than pass it entirely onto households.

What I thought was most interesting however, was the disparity over the GST allocation. If in fact WA had received South Australia’s portion of the GST revenue, not only would the Government have covered their deficit but had a $900 million surplus.

But it is, what it is – so steps have to be taken.

Regardless of the changes in iron ore prices, the fact is we have experienced an unprecedented period of business investment and when projecting to 2018/19 we can still expect continued good times.

And there is no doubt that WA is outperforming the other states when it comes to unemployment rates and GSP output. In fact WA created an additional 40,000 nett jobs in the last 12 months.

Plus the Barnett Government has led the way, with major infrastructure projects such as the Midland Health Campus and Perth stadium etc which will create 93,000 jobs over the period of construction.

So the Government intends to sell the TAB, Forest Products Commission, GROH Stock Housing, some Government buildings and LandCorp land holdings to name the majority.

Plus they are going to cap public sector wages and of course increase some taxes such as land tax.

The spending for the next 12 months therefore is more focused on social elements such as disability services, education, public transport and roads. But the Government has still committed $24.1 billion over the next four years to an infrastructure programme and this is a good sign for our economy.

And the Government believes that after the next 12 months, we will start to see growth again of approximately 5.5%.

The fact is, when you look around Perth, all you can see is nodes of growth and huge private sector investment.

I believe that Perth is in fact about to revolutionise into a new era, and I am excited. While the Government has got some work to do in gaining a more equalised budget, I do believe that the fact that they have decided to invest in WA is a major benefit. It has whet the appetite for the private sector to follow suit and we are in a good place for it.

If you want to know more click onto

Commercial market needs to diversify

I attended the Property Council lunch last week which outlined the status of the Perth office market.

While vacancy rates are currently at 16% with projections that it could reach as high as 23%, the news still has a positive spin.

Interestingly, the Perth office market has grown steadily over the past 24 years, but we have held all our hopes on a one horse race – that is the mining sector.

Graphs shown be Deloiite clearly showed that mining began to play a major role for the WA economy in the 1980’s and we subsequently have ridden that high without then thinking about growing other sectors of our economy.

However with all the building works occurring at The Springs, Elizabeth Quays and Waterbank, what is clear, is that Perth is now moving into a new era – and quite frankly I am excited!

While we have been somewhat remiss in building our economy so that it is robust, now is the time and Deloitte predicted that there were five key markets that they believed would fuel WA’s future including gas, tourism, agribusiness, health, international education and wealth management.

The beauty about building these sectors is that there is obviously spin off industries including gas processing and transport etc.

However what this means is that we have to stop relying on the mining sector to be our saviour and actually take some control of where we take our economy – and that takes decisive action from the private and public sector alike.

This next ten year phase is definitely therefore about taking Perth to a new standard and with 150,000sqm of office space coming onto the market, there is no doubt that companies will look favourably at relocating into newer spaces at more competitive rates.

And if you happen to be holding onto older stock, now is the time to invest and be creative with how you may attract major sectors such as education into the CBD.

But if you stay still then you will undoubtedly suffer.

The writing is on the wall – so make some sound decisions and stay ahead of the pack – or otherwise you will find the next phase of Perth’s evolution will undoubtedly eclipse you!