Financial Year Review 2023/24 Introduction
The Western Australian commercial property sector has experienced varied outcomes in the last year, with some assets classes performing well and others creating opportunistic buying opportunities.
After a sluggish investment period in 2022/23, largely due to elevated interest rates and inflationary pressures on spending (especially in housing and construction), there were high hopes for a recovery in transaction volumes in the 2023/24 financial year. This optimism stemmed from improved financing prospects, increased property listings, and a construction industry bolstered by population growth attempting to address labour shortages.
However, persistent high inflation has dampened hopes for interest rate cuts, causing property owners to remain cautious. This conservative approach led to reluctance in testing the market and accepting new benchmark yields, resulting in tight supply.
Market hesitancy is evident in the limited transaction volumes across most asset classes. Institutional investors have been particularly inactive, becoming net sellers in the current climate. This has created opportunities for private investors.
The retail sector has been the primary beneficiary of these buyers, with increased market volumes this year. However, medical and other alternate assets have also performed strongly. Industrial supply continues to be tight, with owner occupier profile buyers creating demand and bolstering prices.
WA Transaction Volume
Office Market
Source: RWC, Real Capital Analytics, PIMS
The commercial office sector has undergone significant changes in recent years, with COVID-19 leaving a lasting impact. While Western Australia experienced fewer lockdowns than East Coast markets resulting in a less pronounced shift to remote work, low unemployment and competition for talent have led to increased workplace flexibility, altering how businesses utilise their office spaces.
This fiscal year, office sales transactions in the region totalled $396.8 million, marking a 70.4% decrease from the previous year and falling well short of the $1.8 billion peak achieved in 2019/20. This decline is largely attributable to reduced institutional and offshore activity, with private investors emerging as the primary buyers in the current market.
The office sector has been particularly affected by leasing challenges. High vacancy rates across Australian office markets have suppressed rents and increased incentives. Perth CBD has followed this trend, recording a 14.9% vacancy rate. The abundance of options available to tenants puts pressure on property owners to fill their spaces. As a result, effective rents have decreased, and tenants have become more selective in their requirements. For premium-grade assets, tenants may prioritise amenities such as end-of-trip facilities, ESG compliance, and on site cafés.
WA Transaction Volume
Industrial Market
Source: RWC, Real Capital Analytics, PIMS
The industrial sector has been the standout performer in commercial real estate over the past five years, with its popularity surging during the COVID-19 pandemic. This growth was driven by increased retail spending and demand for storage, distribution, and logistics facilities. Supply constraints due to rising construction costs and pandemic-related disruptions led to significant rent increases.
While industrial properties remain popular among investors, Western Australia has seen two consecutive years of declining investment. The past financial year recorded $923.1 million in turnover, a 68.6% decrease from the peak year results of over $2.9 billion. Private sector buyers, including owner-occupiers and investors from both local and interstate markets, have dominated recent transactions.
The industrial leasing market continues to perform strongly, with extremely low vacancy rates under 1%. Although rent growth has stabilised after three years of unprecedented increases, limited new supply is expected to keep rates high. Perth faces a shortage of vacant, serviced industrial land, which may constrain future supply growth.
Despite moderating investment yields due to increased funding costs, industrial assets continue to attract diverse buyers across various price points. The high cost of construction is likely to drive further investment into existing buildings, with secondary assets gaining prominence due to their growth potential relative to replacement value.
WA Transaction Volume
Retail Market
Source: RWC, Real Capital Analytics, PIMS
The retail sector has faced challenges in recent years, but rapid population growth, particularly in Perth, has had a positive impact. Despite evolving consumer habits, strong occupancy levels have been maintained due to limited new supply and increased demand for essential retail, especially food-related businesses.
Transaction volumes have recovered over the past two years, with the current period recording $1.4 billion, a 31.6% increase from the previous year. The success of retail properties varies significantly based on location, with food and services sectors experiencing growing demand for space. However, other retail categories face challenges due to increased living costs and inflationary pressures. Shopping centres maintain high occupancy rates with stable rental increases, while strip retail properties’ performance depends heavily on location and quality. Well-situated assets, particularly those catering to the food sector, have seen favourable rent increases and more stable income streams.
There’s renewed interest in retail centre transactions, driven by population gains and perceived value. Many transactions have shown only modest yield increases, supported by strong and stable income returns. Western Australia’s projected high population growth is expected to drive increasing retail demand. Given limited new supply, the average GLAR per person will remain tight, potentially making retail in this region a strong-performing asset class. Smaller, supermarket-anchored neighbourhood centres are likely to remain one of the more sought after retail assets in the short to medium term.
WA Transaction Volume
Hotel & Leisure Market
Source: RWC, Real Capital Analytics, PIMS
Perth’s tourism sector has experienced significant growth in the past year, bolstered by government initiatives to promote new visitors including world-class sporting events. These efforts have improved occupancy rates and daily room rates across Perth’s hotel assets. Visitor nights for the year ending March 2024 reached a record-breaking 80.4 million, with an average daily spend of $222. The Perth hotel market is outperforming national averages, with annual average occupancy at 78.4% compared to Australia’s 70.0%. This has driven average room rates above $220 per night. The influx of new, high-quality hotels over the past five years has set a new benchmark for the city, attracting international attention. Despite strong performance, hotel transactions this year totalled just $183 million, a 17.2% decrease from the previous year. This decline is primarily due to limited available stock on market rather than lack of interest. Asian investors, particularly from Singapore and Malaysia, are showing keen interest, which is expected to keep transaction volumes stable and investment yields low in the near future.
WA Transaction Volume
Development Sites
Source: RWC, Real Capital Analytics, PIMS
The development site market has struggled in recent years due to pandemic-induced challenges in the construction industry. Supply chain disruptions, increased raw material costs, and workforce shortages have slowed new development across all asset types. Despite stabilising construction costs, labour remains a significant concern, hampering volume recovery. The past 12 months saw only $139.3 million in development site transactions, a 35.1% decrease from the previous year and well below the ten-year average of $354.1 million.
Housing shortages driven by significant population growth have stimulated some activity in both infill and greenfield locations in the residential sector. However, planning issues and costs continue to concern developers, a trend also seen in the industrial sector.
The lack of development site activity is concerning as Perth’s growing population requires ongoing development of residential, commercial, and supporting facilities. The city’s successful expansion depends on advancing and accessing essential services in greenfield locations. Looking ahead, both public and private sectors are expected to maintain long-term commitment to development. However, short-term challenges related to planning processes and workforce shortages will likely persist, continuing to exert upward pressure on costs.
WA Transaction Volume
Medical/Childcare
Source: RWC, Real Capital Analytics, PIMS
The medical and childcare sector has emerged as notable alternative commercial property assets in recent years. Its affordability has attracted private investors, while its growing sophistication has drawn funds, syndicates, and larger groups seeking to capitalise on subsidised income streams. Pre-pandemic, there was a surge in development activity to meet growing demand or sell sites at premium values, however this has now slowed. Recent escalating construction costs have left many sites undeveloped as concerns rise about project viability.
Medical/childcare transactions in Western Australia during 2023/24 totalled $202.7 million, a 28.5% decrease from the previous year. These assets however continue to appeal to a range of buyers, both locally and interstate with an average sale price of sub $5million.
Despite robust population growth in Western Australia, this doesn’t directly translate to increased childcare demand. The influx of overseas migrants has brought cultural shifts in some areas, altering occupancy dynamics for childcare assets. Nevertheless, medical assets remain an attractive investment choice for smaller private buyers looking to diversify their commercial property portfolios, particularly due to their limited supply.
Conclusion
In conclusion, the Western Australian commercial property market has experienced a mixed performance across various sectors in 2023/24.
The retail sector, buoyed by population growth, has shown signs of recovery with increased transaction volumes.
Perth’s tourism sector has been a bright spot, with record-breaking visitor nights and strong hotel performance. However, hotel transactions have decreased due to limited available stock. The development site market continues to struggle with pandemic-induced challenges and workforce shortages.
Alternative assets like medical and childcare properties have emerged as attractive options for investors, although transaction volumes have decreased. The market has seen a shift from institutional to private investors across various sectors, with the latter capitalising on potential distress opportunities.
The office sector has faced significant challenges, with declining transaction volumes and high vacancy rates. Industrial properties, despite remaining popular, have seen a decrease in investment.
Looking ahead, Western Australia’s projected population growth is expected to drive demand across multiple sectors, particularly retail, industrial and residential development. However, challenges such as planning issues, workforce shortages, and construction costs may continue to impact the market in the short term.
Overall, while some sectors show promise, the commercial property market in Western Australia remains in a state of transition, with investors and property owners adopting a cautious approach in response to economic uncertainties and changing market dynamics.
Case studies
Prominent CBD retail site sells for $48 million Sale analysis
A retail development site in the heart of Perth’s CBD has sold for $48 million. The 1,705m² site at 96 and 110 William Street, and 255 Murray Street Mall was marketed by RWC WA agent Brett Wilkins on behalf of JJ Leach Group who are releasing the property to focus on other developments.
The property comprises three tenanted buildings with a total floor area of 4,067m², and sold with a passing yield of 4.89 per cent.
Cape Street, Osborne Park
A block of 18 apartments has sold for $4,550,000. Situated on a regular shaped 4,047m² site with R40 zoning, in close prxomity the freeway access and local retail facilities. The property was marketed by RWC WA agents Brett Wilkins and Stephen Harrison on behalf of Harwin Holdings Pty Ltd.
The property comprised an ideal residential investment in a historically low vacancy rate environment. 96 William St, 110 William St, & 255 Murray St, Perth
Brett Wilkins 0478 611 168 brett.wilkins@raywhite.com
Stephen Harrison 0421 622 777 stephen.harrison@raywhite.com
Brett Wilkins 0478 611 168 brett.wilkins@raywhite.com
$252,778
Harwin Holdings Pty Ltd
Amman Holdings Pty Ltd
Case studies
A jewel in the heart of Lithium Valley
7 Thorpe Way, Kwinana Beach
The property boasts an array of high-quality features designed to maximise efficiency and productivity. Strategically located in the heart of Lithium Valley, in close proximity to transport routes linking this dynamic and emerging area to Fremantle and to the Kwinana Freeway, the property’s excellent infrastructure and advantageous location has ensured that it has been leased continually to high-quality tenants since its construction in 2008.
Sale analysis
Michael Danagher 0403 049 989 michael.danagher@raywhite.com
Lachlan Burrows 0499 552 296 lachlan.burrows@raywhite.com
Whole
CBD Building - suit conversion/expansion 148A Adelaide Terrace, East Perth
148A Adelaide Terrace, East Perth (including 199 Hay Street) is a 5 storey commercial building with multiple levels of tiered parking at the east end of the Perth CBD.
The property was previously occupied as a Bankwest Data Centre and has been sitting vacant for some years as the collective strata ownership struggled to procure a tenant or buyer. RWC WA were appointed selling agents in 2023 and conducted a sale process via public expressions of interest, culminating in two cash and unconditional offers, leading to this sale.
Michael Milne 0403 466 603 michael.milne@raywhite.com
Stephen Harrison 0421 622 777 stephen.harrison@raywhite.com
$4,950,000
Jones 0478 771 117 tom.jones@raywhite.com
32 Strata Owners
Tango & Cash
Ocean views for a lifetime
Ocean Drive, Bunbury
The property boasts a waterfront lot of 16,491m² with uninterrupted views to the Indian Ocean. The property benefits from its dual street frontages to Ocean Drive and Upper Esplanade and is conveniently situated less than 1km from the Bunbury CBD.
Brett Wilkins 0478 611 168 brett.wilkins@raywhite.com
Daniel Abisedon 0419 563 585 daniel.abisedon@raywhite.com
The properties provided an incredible opportunity for investors to secure 15,875m² - 19,983m² prime land along Great Eastern Highway.
Chris Matthews 0413 359 315 chris.matthews@raywhite.com
Brett Wilkins 0478 611 168 brett@raywhite.com
Stephen Harrison 0421 622 777 stephen.harrison@raywhite.com
Occupy or invest in the core eastern corridor
5 Kingscote Street, Kewdale
The property provides a fantastic opportunity for owner occupiers or investors to secure a 1,323m²* building on a prime 4,881m²* parcel of land in the core eastern corridor of Kewdale. The property comprises an 930m²* warehouse, 180m²* canopy, and a refurbished two level 213m²* office. With a major refurbishment undertaken the offices provide an excellent level of staffing accommodation with air conditioning, LED lighting and various partitioned areas throughout.
Sale analysis
Chris Matthews 0413 359 315 chris.matthews@raywhite.com
Liam Pittaway 0439 555 439 liam.pittaway@raywhite.com
CBD retail investment
227 Murray Street Mall, Perth
Constructed over three lots in 2014 the properties comprises two, two level buildings that have been amalgamated over level 1 above a ground right of way.
• Passing Net rent: $2,380,389
• Gross Market Income $2,877,409
• 5.72 year WALE (by income)
Sale analysis
Brett Wilkins 0478 611 168 brett.wilkins@raywhite.com
Case studies
Massive 1,150m² of building space on a sprawling, 4,052m² of prime land
Super prime high street retail asset
Prime land for industrial development
A multifaceted property ideal for storage, import, and wholesale.
Sale price: $2,450,000
Sale date: October 2023
Land area: 4,052m²
Building area: Approx 1,150m²
Land price/m²: $605
Building price/m²: $2,130
Victor Aloi
0404 808 012 victor.aloi@raywhite.com
Super prime ‘high street retail’ property occupying a lead corner site in the heart of Subiaco.
Sale Price: $3,000,000
Sale Date: Feb 2024
Land Area: 460m²
Building NLA: 320m²
Land Rate: $6,522/m²
NLA Rate: $9,375/m²
Michael Milne 0403 466 603 michael.milne@raywhite.com
Brett Wilkins 0478 611 168 brett.wilkins@raywhite.com
3.1-hectare industrial land in the thriving new Muchea Industrial Park (MIP). Just 30 minutes from Perth Airport and 40 minutes from the CBD, it’s adjacent to WA’s largest regional truck stop and Muchea Road
Train Assembly Area. MIP offers excellent connectivity, a commitment to sustainability, and a supportive environment for businesses of all sizes.
Sale Price: $4,000,000
Lachlan Burrows 0499 552 296 lachlan.burrows@raywhite.com
Tom Jones 0478 771 117 tom.jones@raywhite.com
12 Winchester Road, Bibra Lake
132 Rokeby Road, Subiaco
Lot 201 Muchea East Road, Muchea
Case studies
Rare whole floor tenancy at Perth’s iconic council house
Niche terrace office space
Prominent Allendale Sqaure office
A whole floor office comprising 753m² on the third level of the iconic Council House building. The centrally located office includes 3 car bays at $890 per bay pcm. RWC WA were appointed as exclusive leasing agents to offer the tenancy to market and leased the tenancy through our database within a month of the appointment. It was the first time in ten years that the City of Perth had offered accommodation to an external party within Council House.
Rental: $375/m² pa net Car bays: $890/bpcm
Term: 10 years
Tenant: McWilliam Davis Lawyers
Luke Pavlos 0408 823 823 luke.pavlos@raywhite.com
Landlord: City of Perth
A 260m² office suite on the level 6 of a prominent office building. Leased on a 4 year term to a an engineering firm and a grade office building located in the heart of Perth CBD.
Rent: $575/m² pa net
Car Bays: 2 bays at $795/bpcm
Term: 4 years
Landlord: Peakstone
Tenant: Bentech
Luke Pavlos 0408 823 823 luke.pavlos@raywhite.com
An exceptional office on Level 20 of the prominent and centrally located Allendale Square building. Comprising 287m² of lettable office space, this opportunity presented the pinnacle of commercial leasing options available on the current market. RWC WA successfully introduced and concluded the transaction for a long-term lease to a wellestablished Perth legal firm.
Rent: $670/m² pa Term: 7 years
Landlord: Centuria
Luke Pavlos 0408 823 823
luke.pavlos@raywhite.com
Tenant: CS Legal
