Brookfield backs Perth office rebound

The past 12 months have been bleak for office developers in Perth, but one major player says there’s light at the end of the tunnel.

Perth's most prominent office developer has confidence there will be sufficient demand to underpin the next wave of commercial development in the CBD, despite the rising office vacancy rate.

There has been much conjecture this year over the state of the office market, and the chances for any new significant projects in a tough leasing environment.

The Property Council of Australia reported in August that the city’s office vacancy rate had increased to 11.8 per cent, and with significant commercial projects under construction such as Leighton Properties’ and Dexus Property Group’s Kings Square, part of which is yet to be leased, pundits are expecting vacancies to blow out further before any reduction.

However, Brookfield Office Properties Australian office division president, Kurt Wilkinson, said there were several companies operating across numerous locations, mining giant Rio Tinto being the most prominent, that would be likely targets to be anchor-tenants for a significant office project.

“They might think about bringing everything under one roof for operating efficiencies and things like that, a bit like BHP Billiton did a couple of years ago,” Mr Wilkinson told Business News ahead of the topping-out ceremony for the second tower at Brookfield Place.

“The Perth market has grown; in the past 10 years it’s doubled in size from around 900,000 square metres to around 1.8 million, and we’re expecting it to grow a lot.”

Mr Wilkinson said the majority of development during the past decade had been A-grade or premium properties, rather than smaller secondary office assets.

“We’re seeing tenants want to gravitate towards A-grade or better property,” he said.

“So the new wave of development activity will be those consolidations of tenants wanting to move into better properties, and the market will grow significantly.

“The question will become what happens to those secondary products?”

Mr Wilkinson said Brookfield was not concerned about the rising vacancy rate, describing it as a natural cycle of the market.

“It’s always going to peak and trough,” he said. “It’s not something to be concerned about when vacancy rates go up, it’s how you set your portfolio up and how you manage yourself for those peaks and troughs.

“Our portfolio is vastly the newest properties in the market with long-term leases to great tenants, so we expect to ride through the cycle.

“Our view is the older buildings will be more affected by it. The vacancy rate will go up, the spread between secondary grade assets and prime grade assets will grow and probably get back to a normalised rate.

“But we’ll continue to be active in how we manage and set our portfolio up to make sure that we protect our investments against the cycles and in some ways take advantage of the cycles when they are in a trough.”

Mr Wilkinson said he expected leasing to pick up in the Perth office market in 12 to 18 months, pointing to a good rebound in leasing demand in Sydney and Melbourne over the past year.

“We’ve had some really good leasing success, particularly in Sydney this year, which probably surprised us a bit because the level of inquiry and activity came back a little bit quicker than expected,” he said.

“Perth is probably lagging those two cities a little bit, but I think Brisbane is actually lagging Perth a little bit further as well, it’s another 12 months behind Perth.”

Mr Wilkinson said the construction schedule at its newest development, the second tower at Brookfield Place, remained on track for completion by the start of December next year.

City of Perth Lord Mayor Lisa Scaffidi was on hand last week to shovel some ceremonial concrete at the 16th floor of the 34,000sqm office tower, which has attracted anchor tenants in accounting group Deloitte and law firm Corrs Chambers Westgarth.

Brookfield’s construction arm, Brookfield Multiplex, will also take up space in the new tower.