Why Perth’s Office Market is outshining east coast assets

Perth’s office market has become the poster child for resilience and future growth potential since the pandemic, solidifying the west as a compelling office property investment alternative to the east coast.

From a rise in occupancy to a cliff drop in supply, there are several reasons why Perth’s office market is outshining the east as an investment destination; particularly for those looking for exceptional growth in an untapped (but burgeoning) commercial property market. Here they are:

Why Perth is proving to be a desirable office property investment target:

1. Declining vacancy rates

According to data from Herron Todd White’s (HTW) May Month in Review, the Perth CBD has seen a notable drop in vacancy rates, down from 15.9 per cent to 14.9 per cent over the past six months. It was in the only CBD market across the nation to show a decline in the year-on-year CBD office vacancy rate.

The downward trend shows there’s a steady demand for office space in Perth, especially compared to the rising vacancies and softer demand in major east coast cities, like Sydney and Melbourne. (Supply is also a major factor—more on this soon.)

These herculean east coast markets are watching their office buildings reduce in relevance. High vacancy rates, driven by a long pipeline of supply and persistent work-from-home trends—along with economic uncertainty and rising construction costs—are mostly to blame. Many of those troubles are non-existent in the west.

2. Continued relevance

The work from home culture captured the world during and after the pandemic. Nearly every office worker experienced the trend in one way or another, and many of them—particularly on the east coast—are still working from home offices, countertops and dining room tables.

It’s caused landlords to question the relevance of their office premises and driven some proactive owners to reconfigure their Melbourne office buildings into residential space.

In Perth, this is not the case.

WA experienced the flexible working arrangements like every other major city, but instead of the trend continuing, most white collar employees headed back to the office—and that is where they’ve remained. Tenants are indeed looking for smaller floor plates, but there is continued demand for a central location for their employees. This relevance is a considerable advantage the west has over its east coast counterparts.

3. Leasing demand

Leasing enquiry volumes in Perth’s CBD surged by approximately 74 per cent in the first quarter of 2024 compared to the previous quarter. The same quarter saw an obvious flight to quality. Approx. 29 per cent of deals saw tenants relocating to higher quality premises.

The leasing market is also seeing a flight to centre, with many tenants upgrading their premises or relocating from one side of the freeway (i.e. West Perth) to the other (i.e. Perth CBD). Again, 29 per cent of new lease deals in 2024’s first quarter saw tenants moving from the suburbs to the CBD.

Even West Perth itself is recognised as the strongest performing leasing market, with a decline in office vacancy to 12.1 per cent (below the 5- and 10-year averages, according to Collier’s Office May Middle Markets Report). The precinct has also seen a 9.3-per cent increase year-on-year in net effective rental growth.

Some might say a lower cost of living and doing business in Perth makes it an appetising target for businesses looking to relocate or expand, without the hefty price tags of cities like Sydney or Melbourne.

4. Restricted supply

Far from the first time we’ve mentioned this, high tenant demand coupled with a limited supply of premium office spaces is making Perth a particularly attractive market for investors seeking high-quality office properties. Upcoming developments are minimal, with only a few key projects like the Capital Square Tower 3 and refurbishments of existing properties on the cards, ensuring that demand continues to drastically outstrip supply.

WA’s office vacancy rate is set to continue its downward trajectory, with little CBD development expected for some time. You can read more about this in our white paper on the Perth CBD office market.

5. Strong economy and diverse economic base

WA’s economy is proving robust and reliable, this year forecasting a growth rate of 4.7 per cent for the domestic economy—over double the national average. 94,000 new residents per year has helped strengthen the economy, alongside new urban infrastructure and business investments.

Perth’s economy is diversified too, unlike some east coast cities that heavily rely on professional services. Instead, WA boasts strong mining, energy and technology sectors, and this economic diversity provides an even more stable foundation for the office market.

Yes, it’s that simple theory of diversification: downturns in one sector are often offset by growth in others.

6. Future growth potential

With investors’ eyes always on the horizon, Perth is positioned for excellent future growth. Its population is on the way up, its residential market is booming, the economy is ripe and several large-scale infrastructure projects in the city are nearing completion.

Perth is increasingly becoming a destination for national and international office tenants, with more major companies looking for headquarters in the west. Perth has perhaps never been more relevant, and its office market has a long road of growth ahead.

Perth CBD: A target for investment capital

And perhaps evidence of its growth is in the large amount of institutional investor capital flowing into the market. While east coast office markets like Sydney and Melbourne have traditionally been the go-to destinations for investors, Perth’s office market is taking a greater share of the pie.

We should know; Properties & Pathways and our investors were the buyers in the largest Perth CBD office building transaction in the 2023 calendar year. For investors seeking stability and growth in a rising market, Perth’s office market is a worthy consideration.

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