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Latest News - City office market showing renewed confidence

By Sharryn Johnston (Feb 19, 2010)
After predictions of vacancy rates blowing out to 15 per cent and warnings of the need for massive rent holidays and incentives, latest indications show CBD landlords’ pain might not be felt as harshly as thought as mid-year. 
The Perth office market stabilised in the third quarter, with only a small increase in vacancy rates and a steep rise in inquiries. 
David Evans, Jones Lang LaSalle national office leasing director, said there had been a turnaround in sentiment. 
“There’s been a reversal of confidence around town, there’s a buzz on the streets and people are excited about the forthcoming period of time,” Mr Evan said. 
Sub-leasing areas were still available, but they had dropped from 50 per cent to about 35 per cent of total vacancies in the CBD.
Tenants were worried about retaining quality staff heading into a new growth cycle and, together with forecasted growth, were justifying retaining excess space in the short term.
“Businesses are using the current economic climate to headhunt the best personnel in their markets," Mr Evans said. 
“With potential future staff shortages of specialised personnel, if businesses downsize staff and then offload excess space, HR directors question whether they will be able to re-acquire the needed staff and therefore the additional area without having to seek alternate space in another building or location.”
Markets supporting the resource sector would also blossom again, having a snowball effect on demand for space. 
“It’s the business and professional sectors, engineers, consultants, lawyers and accountants – when the mining sector starts to take off it has a watershed or butterfly effect across the entire market,” Mr Evans said. “There is a lag, it does take time, but they are all positive signs going forward, inquiry levels are up and rents and incentives are already starting to stabilise.” 
He said the addition of some space would lead to a small short term increase in vacancy rates, but as the mining resources cycle revived, vacancies would stabilise and eventually fall. 
John Williams, JLL national sales and investment director, said capital values for investment properties in and around the CBD fell by between 20 and 30 per cent from their 2007 peak, with the bottom of the cycle falling in the second quarter of this year. 
“In the last two or three months there has been hard evidence of an increase of circa 10 per cent,” Mr Williams said. “Sentiment has definitely improved and there is now a good level of interest for any opportunities on the market.”
Non-income properties such as development sites remained heavily discounted, hampered by non-availability of debt.
Mr Evans said development was needed if the city was to avoid a repeat of having the tightest office market in Australia. “My biggest concern is that if we don’t start seeing some development being proposed to hit the market in 2014-2015, it will limit occupiers’ ability to expand and we’re going to be back where we were in 2007 or 2008,” he said.

JLL has signed a number of leasing deals recently, with Chevron Australia signing up for the sublease of 1860sqm at 216 St Georges Terrace, Proteus Global Solutions leasing 1230sqm at 432 Murray Street and LandCorp sub-leasing 425sqm at 40 The Esplanade.

Athanae Lucev (November 18, 2009)

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