Perth CBD Office Prices Drop as Tenants Sub-Let

Finally the Wall Street melt-down has cooled down Perth’s overheated office market. Desperate mining and resource companies are trying to sub-let unused office space to pay the bills as the usual angel investors focus more on their margin calls than investing in new projects.

Businesses, including junior minors, who sprang up and expanded rapidly during the boom times, are now trying to off-set costs by sub-letting office space no longer required as staff have been laid off.

Perth, which in the first half of 2008 had one of the world’s tightest office rental market, now sees vacancy rates increasing and growth rates dropping rapidly. In some cases offices are available for sub-let at $100/sqm less than the lead tenant is paying.  The logic is that it is to get back 70/80% of your rent than none of it.

The official vacancy rate is now 0.3% but some commentators think that it might be closer to 1%.  If the drop in demand from China for Australia’s iron ore and other minerals is sustained, than Perth’s office vacancy rate could hit 5% by the end of 2009.

Colliers International expect rates to strart dropping: current rents of $700/sqm in a B-grade building will drop back to $600/sqm.  However some tenants who locked in lower rents before the boom may still see a rent increase when their properties come up for renewal.

As usual prime, west end, property will hold their value, but buildings a little out of the CBD or West End may well struggle to retain either their tenants or their rent levels.