Space squeeze pressures west end

Continuing strong interest in strata offices on the CBD-fringe is expected to lift strata sales to $5,500 a square metre this year on the back of low availability, minimal new construction and high levels of owner occupier demand.

Jones Lang LaSalle national director investments, Wayne Mitsikas, said that, during the past 12 months, traditional tenants had been switching their focus to the CBD fringe as an alternative to the city due to record low vacancies and escalating office rents.

“More and more previously CBD lease space users are entering the market as purchasers and further fuelling demand,” Mr Mitsikas said.

“Proactive management of this asset class has also contributed to its popularity.”

All of these factors have contributed to a shift in values for newer strata products in West Perth and Subiaco, from about $2,000/sq m in 2002 to more than $4,500/sq m to 5,000/sq m today.

It was not unreasonable to expect values to exceed $5,500/sq m in 2007, Mr Mitsikis said.

But the challenge ahead for developers remains sourcing appropriate sites within the recognised office precincts of West Perth and Subiaco as land values continue to rise and competition for lots between commercial and residential developers intensifies.

Commercial office buyers are reportedly looking for properties with more car parking allocations, gymnasium, recreation facilities and landscaped surrounds prompting more strata office developers to consider building on well located sites outside of recognised precincts.

Giorgi Group managing director Guido Giorgi said prices had doubled in three years, although this rate had been mirrored in the cost to build.

During the past eight years, the company has specialised in ‘design and build’ strata office projects in West Perth, Subiaco and Osborne Park.

“We could build another three office projects easily right now as there is still more demand than supply. The confidence in the market is still there across the board,” Mr Giorgi told WA Business News.

But sourcing developable land remained a challenge for the group, which Mr Giorgi said was analysing its options ahead of an expected market turn, with a possible change of focus to other markets.

“The commercial market will continue to perform for at least the next year to two years, before it will flatten out," Mr Giorgi said.

‘‘We’d like to continue with the same product, shape and features into this next phase but we’re analysing our options.

‘‘If we had a crystal ball we’d be fine.’’

The group is currently designing its ninth strata office project to date on the former Blue Note Tavern site at 162 Colin Street, West Perth, and is expected to submit a development application to local council next month.

The Blue Note Executive Offices will comprise 5,000sq m of office space over three levels with an onsite cafe.

Its last project, Tempo at Subi Centro, was completed eight months ago and all 5,600sq m of strata office space has been sold and leased.