In recent years, Western Australia has seen a rise in the number of new commercial buildings being constructed.
However, with the increasing pressure on sustainability credentials for occupiers and reducing carbon footprint, coupled with WA suffering from the highest construction costs nationally, the market must pivot to refurbishing older commercial assets.
Developers within Western Australia must manage with a smaller pool of major tenants who occupy in excess of 3,000 sqm. According to our Cushman & Wakefield database, the total Perth CBD stock is 1,806,792 sqm of which we have 55 tenants leasing 3,000 sqm or more totalling 532,219 sqm. This tenant pool is representing about 30% of the market and this limited pool makes it harder to get the requisite pre-commitments in place prior to securing funding. Tenants above 20,000 sqm represent 13% of the CBD office market.
Coupled with this has been the disappearance of tier 1 contractors which has now reduced to just 2. This has escalated the cost of building new commercial office towers in WA with a knock on-effect being the rapid escalation in economic rents required to construct a new office tower.
With this likely reduction in new supply to the market, owners will need to give much deeper consideration to the refurbishment of existing assets. Anecdotal evidence in the leasing market is pointing to steady improvements in face rents of $25-34 per sqm over the last 12 months, although for now this is concentrated to the premium and upper A Grade segment.
If vacancy rates continue to decline and there is a continued constriction on new supply then we should be looking at the existing stock and find ways to meet the requirements of the modern workplace including ESG initiatives, and future proofing buildings for the next 20 years.
Refurbishing older commercial buildings can also provide unique and character-filled spaces that cannot be replicated in new builds – just look at the State Buildings that have been turned into a modern multi use commercial precinct that breathes life into that area of the CBD. It represents a chance to preserve the heritage and history of the area whilst bringing it into the modern era.
There are also environmental benefits to repurposing older buildings. By breathing new life into an existing structure, we are reducing the need for new construction materials and decreasing the carbon footprint associated with new builds. It’s arguably a more sustainable approach to development and can help us work towards a greener future.
There are limitations and not all older buildings can or should be refurbished. Some may be beyond repair, and obsolescence whilst the cost of refurbishment may outweigh the economic fundamentals. However, by looking at older commercial buildings and assessing their potential, we can find many diamonds in the rough that can be transformed into unique and functional spaces.
Most recent examples in Perth that have undergone transformation or are in the process:
- Carillon City
- Dynons Plaza
- 125 Hay Street
- State Buildings
- 186 & 190 St Georges Terrace
- Parmelia House
As the cost of new builds continues to skyrocket in WA, it’s time to shift our focus to refurbishing older assets and making the most of what we already have.