Space in CBD opens up as business contain costs (The West Australian)

The amount of office space available for lease in the heart of Perth has swelled from a mere 0.2 per cent last June to 1.3 per cent as companies dealt a financial body-blow vacate the space they once fought to secure.

The Property Council of Australia is due to release the CBD office vacancy rate this morning.

As companies rationalise costs and contract into smaller offices, many are being forced to sub-lease surplus space they rented at the peak of the boom.

Jones Lang LaSalle’s official figures show the amount of sub-leased space has jumped from not a single square metre at the end of 2007 to 3623sqm at the end of last December.

JLL senior research analyst Andrew Bouhlas said the sub-leasing rate was bound to increase.

He also predicted the overall office vacancy rate would be about 5 per cent by the end of the year.

Knight Frank national director of office leasing Greg McAlpine said incentives were already creeping back into the market, taking the form of rent-free periods and cash for relocation and fit-out costs.

“And rents are going to come back marginally, make no bones about it, but the actual fallout is yet to be seen,” he said.
A lot of the new space coming on to the market was sub-leased, as a result of the rationalisation forced by the economic situation, rather than directly leased.
   
Mr McAlpine said that on the positive side, he was seeing situations where tenants who had been using boardrooms and meeting room space for staff now had opportunities opening up, whereas in the past there was no vacant space.
   
The office merry-go-round is proving lucrative for companies that undertake fit-outs and refurbishments as space is adapted to suit new needs.
   
National construction and project management firm KSA Projects said many companies were examining their property-related costs and devising strategies to use space more efficiently so they could remain viable.
   
KSA Projects State manager Russell Mengersen said the firm was seeing an increase in tenders from clients who had multiple sites and were looking to rationalise their property needs and scale down.
   
“We are seeing a lot of that,” he said. “Some people are doing it to consolidate their space into one and ditch their other rents. A lot of the moves around town still are from the need to pull a team together.”
   
Cost rationalisation through relocation was becoming increasingly commonplace.
   
“In the coming months we are expecting a significant increase in demand for capital works management services as all sectors of the economy look to rein in costs,” he said.
   
“As businesses continue to scrutinise their cost base, we are witnessing clients looking at relocation as a feasible means of lowering overheads.
   
“This has meant a large uptick in demand for cost-effective fit-out and capital works programs.”
   
Mr Mengersen said as late as October he had struggled to find space for companies in the CBD.
   
“But now space is popping up in the market all over the place,” he said.
   
The firm gave advice early in the planning and feasibility stages, helping clients decide whether to move, stay and upgrade, or cancel a proposed project that did not stack up, he said.
   
KSA has secured more than 60,000sqm of construction and capital works management projects in the office, retail and hospitality sectors in WA.
   
It has been in WA for only a year.
   
Its projects include a 20,000sqm office refurbishment program and base building upgrade for Investa in Perth, office fit-outs for engineering clients in West Perth, Belmont and the CBD of 5000sqm, 2500sqm and 5000sqm respectively, and a 700sqm office fit-out for WestScheme in the CBD.
   
It is also undertaking capital works management for Australia Post sites in WA, involving new delivery centres and a 500sqm fit-out for a hotel in the centre of Perth.
   
Isis Projects, a national firm that specialises in commercial fit-out and refurbishment services, also has a lot of revamping work on its books.
   
State manager Richard Pawle said a lot of companies which locked into leases in new buildings that were still going up had to go ahead with their fit-outs but some were sub-leasing superfluous space.

Parsons Brinckerhoff, a planning, engineering and project management firm, moved from Subiaco to Murray Street and rather than taking up three floors as originally planned, was now sub-leasing one.

Isis also completed a five-star Green Star fit-out for AECOM businesses, which recently moved into the heritage-listed GPO building in the centre of Perth, and is conducting the overhaul of the Citigate Hotel on the site of the former Grand Chancellor Hotel in Wellington Street, due to be ready by the end of the month.

Fit-out costs ranged from $800/sqm to more than $2000/sqm on average, Mr Pawle said.
   
But the fit-out for the new Kailis Pearls shop in King Street, carried out by Isis, cost more than $10,000/sqm and the proposed new Qantas Chairman’s Lounge at Perth International terminal was expected to be priced similarly.

CATHY SAUNDERS