The state of play in Perth's industrial real estate market

Until recent years, Perth has been a city firmly in the grip of a mining boom. This caused a corresponding property boom, for industrial, through to residential real estate.

In 2014, the first signs of change emerged and the mining and manufacturing industries began to quieten down, bringing with them the industrial real estate market. Russ Parham the commercial director and principal of Ray White Commercial WA has been in commercial real estate for over 30 years - through it all. An experience that has no doubt helped him to become one of the leading commercial agents in the country. When asked about his success his reply is characteristically modest:

"It's just good communication and honesty whether the news is good, bad or ugly. If it's not the news people want to hear you need to provide a solution. That's what I've built my reputation on - being able to provide solutions and communicate with people honestly. People deal with people they trust and this business is all about trust."

It's an approach which seems to have worked as Russ has been in the top 5 per cent of Ray White sales people internationally for four of the last five years.
We sat down with the man himself to get his expert and honest opinion on what exactly is going on in the Perth industrial real estate market right now.

The state of play in Perth

Ray White research shows the gross state product for Perth is below 2 per cent and suggests there are few indicators that this will change in the near future. As a result, and thanks to the exodus of the mining and manufacturing industries, the Perth industrial property market is suffering from a considerable shortage of demand.

All sectors of the industrial market seem to be feeling the pinch. Demand from self-managed super funds looking to take advantage of low-interest rates has stalled, along with owner occupiers who seem to prefer to enter the competitive long term leasing market rather than buy. As a result capital values are compressing.

However, positively, very little new supply has been added to the market in recent times, which has helped in keeping vacancies down.
Russ stated that although all signs point downwards the market is not in as dire a state as people believe:

"The current market state has a lot to do with uncertainty and lack of confidence and that's symptomatic of where the economy is right now. We're not seeing anything but an ordinary market here in Perth - we had 10 years of a false, booming market and now it's switched back into production rather than construction."

With this in mind, and with smart advice, Perth industrial property can still prove a lucrative investment if you receive sound advice.

Rents can only go up

In the midst of the boom 3 years ago, rents reached an all time high of up to $120 per m2 . As industry slowed, vacancies heightened, putting downwards pressure on rents as landlords and property managers tried to attract tenants.

Fast forward to today and Ray White research shows that the drops in average rents across the city shows the extent of the changes the market has gone through recently. Rents in the South and North precincts have fallen by 12.07 and 11.38 per cent, respectively, while the Eastern precinct has seen a more modest drop of 6.62 per cent.

Throughout Perth average rents per m2 sit at roughly $90, but Russ is of the opinion that this will soon improve:

"We're getting a distinct feeling that rents have bottomed out and next year we think they will either bump along the bottom or start to improve. This could happen sooner or later depending on what happens in the economy."

Vacancy rates are high but investment's still possible

There's over 880,000m2 of vacant industrial real estate throughout Perth; a number that should prick the ears of those looking to lease space. Due to the pressures from vacancies, Russ suggested that leasers have a lot of power in the current market:

"Tenants know that they can get a better deal because there are so many properties to choose from, and landlords are under pressure. This makes the entire process take longer"

From an investor point of view however, the market's signs are slightly more worrying. It might be worth looking to suburbs in the southern precinct such as Cockburn and O'Connor, where vacancies are lower than the city average with around 20,000m2 of vacant space each (much lower than the city average).

Otherwise Russ suggests that investment can still prove lucrative:

"You just have to look at quality of tenants, the quality of the lease and the tenure. For investors here the key thing is to avoid vacancies."

He also suggested that the future of the market here was bright, and that things would soon start to change for the better:

"Perth will continue to be a solid area. we're just coming back to a reasonably stable market - it's taking people a long time to adjust to that. We've got a very strong resource sector with production gas and oil becoming more and more prominent in WA. Look at Sydney - it can only go one way and that's down because markets are cyclical, whereas here in WA it can only go one way and that's up."