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Western Australia is emerging as one of the least-affected economies of the COVID-19 pandemic, and nowhere is this more obvious than in its commercial real estate market.
While commercial landlords across the country and the globe again faced uncertain markets in 2021 – particularly in the retail and office sectors – Western Australia recorded one of its best years.
According to research by Colliers, more than $1.943 billion was invested in Western Australian office, retail and industrial assets between 1 January 2021 and 31 October 2021. That’s a 25 per cent increase above 2019 – the last regular market year before the onset of the pandemic.
John Marasco, managing director of capital markets and investment services at Colliers, said that the state’s handling of the pandemic had positioned it well as an attractive prospect for commercial investors.
“All the major east coast investors are heading west because they see value and opportunity,” Mr Marasco said.
“And there is more opportunity still to be unlocked as borders re-open and offshore buyers return, adding increased competition to the domestic market. It is a very exciting time for the commercial property market in WA.”
Office spaces present as stable prospects
Colliers’ data shows that Western Australia’s transactions in the office sector for 2021 were 44.8 per cent higher as of 31 October than 2019 pre-pandemic levels.
The state recorded $893.3 million in office sales above $5 million transacting over the period. That’s also a 195 per cent increase in 2020.
Perth CBD office sales were the primary driver of this trend, with transactions in the capital up 160 per cent over 2019.
Adam Woodward, head of office capital markets at Colliers, said the city had become an attractive prospect as Perth offered a higher yield spread when compared with markets such as Sydney and Melbourne.
“Investors are increasingly being priced out of core CBD markets on the east coast and are looking further afield to secure core investments. Assets that offer security in the form of long leases to secure tenants attract high competition,” he said.
And with occupancy in the Perth office market higher than the east coast CBD markets, with occupancy at 76 per cent of pre-COVID levels, investors are increasingly going west seeking greater stability.
“There is currently a wall of money looking to invest in Perth, and this is largely attributable to its transformation into a mature and liquid investment market,” Mr Woodward commented.
Retail shows unprecedented strength
In the retail sector, Western Australia recorded $500.3 million worth of shopping centre transactions in 2021 through to 31 October, with the largest deal being the $195 million sale of The Square Mirrabooka to Fawkner Property.
The neighbourhood shopping centre market alone recorded $351.85 million in sales, up 143 per cent from $144.43 million in 2019.
Colliers’ head of retail investment services, Lachlan MacGillivray, said he has never seen stronger demand for Western Australian retail than he’s witnessing right now.
“WA has been the least-interrupted retail sales market in the world throughout the COVID-19 pandemic and, as a result, the WA market has outperformed in a major way,” Mr MacGillivray said.
Industrial space faces stiff competition
Industrial transactions in Western Australia recorded a staggering 250 per cent increase in 2021 over the 2019 sales figures, with $549.47 million in sales above $5 million processed in the first 10 months of 2021.
Gavin Bishop, head of industrial capital markets at Colliers, said investors were veritably chomping at the bit to get a piece of the action.
“There is so much capital wanting to get placed in the industrial sector, and yields are so tight on the eastern coast, that investors are looking seriously at Perth and the WA market more broadly,” Mr Bishop said.
“Buyers are pursuing WA for value and to capitalise on the improving leasing market, where vacancies have tightened significantly over the past 12 months and rental growth has returned,” he added.
“This is all against the backdrop of a rebounding economy and scarcity of land supply to accommodate demand for new development, particularly in core locations such as the eastern corridor.”
But he noted that with prices expected to rise, the time to strike is now.
“Once WA industrial prices start to increase and are more on par with the eastern states, the yield spread will not be as great as it currently is,” Mr Bishop said.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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