Mid Year 2019 – Perth Commercial Property Market

  • WA’s economy is expected to accelerate over the next five years with continuing growth in exports and the launching of a new wave of resource sector projects
  • The vacancy rate of the Perth CBD office market declined for a fifth consecutive period
  • Increased government infrastructure spending and recent resource project announcements has resulted in an improved level of tenant enquiries for industrial space


While there has been some improvement across the Western Australia’s economy as a whole, State Final Demand still contracted by 1.4% over the year to March 2019. However, the outlook is more positive supported by global demand for steel surging leading to the price of iron ore rising to five-year highs as China’s response to their economic slowdown has been to increase infrastructure spending. Given these high commodity prices, this setting provides the opportunity for the State government to maintain spending in the WA economy. The recent State Budget has allocated additional funds towards infrastructure with more than $4 billion to be spent on the METRONET rail project and $1.2 billion to be spent on the Tonkin Highway. Outside of the resource sector, other indicators continue to improve with annual population growth reaching three-year highs and the unemployment rate at 5.8% as at June 2019, its lowest level since October 2018. WA’s economy is expected to accelerate over the next five years with continuing growth in exports, combined with increasing business investment as spending on a new wave of resource sector projects (mostly iron ore and lithium) gathers pace.

Perth Prime Yields

Office Market

Mirroring the steady improving local economy, the vacancy rate of the Perth CBD office market declined for a fifth consecutive period. Having peaked at 22.5% in 2017, the CBD office vacancy rate has now fallen to 18.4% as at July 2019. Much of the improvement in the vacancy rate was as a result of the successful take-up of 240 St Georges Terrace which was fully vacated by Woodside in late 2018. The building is now 93% leased with Macquarie, Wood, Worley, Illuka Resources, HWL Ebsworth, BP, Nous Group, CBH Group backfilling the space, illustrating the tenant demand for quality office space when available. While there are positive signs for the CBD, the constrained development pipeline will support further falls in the vacancy rate. There is no new supply scheduled for completion until 2023 – Chevron’s new Australian 52,000 sqm headquarters. Impacted by several tenant relocations into the CBD, the vacancy rate of the West Perth office market rose to 16.9% at July 2019, its highest level since 2017. With vacancy now having fallen over the past two years coupled with business confidence rising, prime net face Perth CBD office rents have increased by 2% over the year to July 2019 with stronger net effective rental gains recorded as incentive levels tighten. With improved investor sentiment on the WA economic outlook, office transactional volume surpassed $950 million for only the third time in 2018, however limited opportunities have resulted in only $250 million transacted in 2019 to date. The increasing competition for Perth offices has prime yields firming with Urban Property Australia recording compression of 25 basis points with prime yields averaging 6.75% as at July 2019.

Perth Office Vacancy Rates

Industrial Market

As the WA economy continues to gather momentum, the industrial property market is also showing modest signs of improvement with exports increasing on stronger production volumes and rebounding commodity prices. In addition, increased government infrastructure spending and recent resource project announcements has resulted in an improved level of tenant enquiries for industrial space. Although there has been a notable increase in enquiries, leasing activity remains relatively muted with tenants focused on prime properties capitalising on attractive leasing terms. Following the pick-up in leasing activity, the Perth industrial vacancy rate continues to improve, falling down to its lowest level in three years. Reflecting the declining vacancy, Urban Property Australia has recorded a modest lift in prime net face rents, increasing by 3% over the year to July 2019. In contrast, impacted by tenants upgrading into prime premises, secondary net face rents have fallen by 2%. Transactional volume continues to flow in the Perth industrial market with Urban Property Australia only recording $84.8 million in 2019 to date with annual investment activity falling each year since 2016. Private investors and unlisted funds have accounted for the majority of acquisitions in 2019 to date, attracted by Perth’s favourable market yield spread compared with yields for industrial assets along the Eastern Seaboard. Prime yields have tightened by 50 basis points this year to now average 6.75% while secondary yields have remained stable at 8.15%.

Perth Industrial Property Sales Volume

Retail Market

Retail trade in Western Australia continues to gradually improve having recorded annual retail trade growth for a ninth consecutive month as at May 2019. Over the 12 months to May 2019, WA retail trade grew by 0.4% compared to retail trade contracting by 0.7% a year earlier. Most retail sectors recorded annual growth but surprisingly was led by the discretionary sectors of clothing, which grew by 5.4% over the year and department store sales (2.3%). Impacted by the subdued housing market and slowdown in housing construction, spending in the household goods spending contracted by 2.8% over the year to May 2019. Retail spending is expected to progressively increase over the next five years as consumer confidence increases, population growth continues to gather momentum and the labour market strengthens. Despite the soft retail conditions, underpinned by the expansion of several shopping centres, new retail supply for the Perth retail market reached record high levels in 2018 with the addition of 165,000 square metres. Looking ahead, new supply levels are projected to moderate with 60,000 square metres currently under construction with the majority of space scheduled for completion next year. With investor appetite restrained for Perth retail assets, retail property transactions in 2019 to date total just $55 million with private investors accounting for 54% of all retail assets sold in Perth.

Perth Retail Property Sales Volume

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