Perth’s changing commercial market: impacts on investors

Wednesday, 3rd Aug 2016

Perth’s suburban commercial markets are transforming as new supply continues to move towards mixed-use hubs. But what does it mean for investors?

While tenants and landlords have adopted these building types to provide a more dynamic experience to centre users, the premise of mixed-use hubs has been driven by government policy, specifically Western Australia’s planning blueprint ‘Directions 2031 and Beyond’.

The blueprint promotes “liveable, vibrant centres” where people can work and reside in the same location.

This has promoted new supply containing office/retail uses on the lower floors and residential apartments on the upper floors.

A number of local councils have either rezoned for mixed-use development, or are in the planning stages, including City of South Perth (Station Precinct), City of Stirling (Stirling City Centre) and City of Swan (Midland Master Plan), among others.

What does the move towards mixed-use developments mean for investors?

The move to mixed-use buildings in metropolitan Perth presents many opportunities for commercial property investors.

The higher-density housing comprised within these developments delivers greater population density that can lead to greater demand at local retailers, for example.

This may help to revive some decaying suburban precincts or activate new areas.

However, there are also a number of risks that investors need to be aware of as well.

Investors considering acquiring commercial space need to understand which councils are undertaking rezoning to allow mixed-use developments.

The specific requirements to build these types of projects will vary from area to area, so investors need to understand these different criteria.

For example, the South Perth Station Structure Plan requires a minimum plot ratio of 1.0 for commercial use in any mixed-use development, such as the Civic Heart development.

This requires developers to construct at least 1 square metre of commercial grade space for every 1sqm of land area.

The aim is to create an additional 120,772sqm of commercial floor space in the area over the life of the plan.

Areas that are introducing a significant amount of new commercial space may be subject to an oversupply of stock.

The new stock provides increased competition for existing commercial premises and, if too much stock is added to an area, some commercial property owners may have to accept long vacancy periods or rent reductions.

Given these changing markets, investors need to complete adequate research to determine how rezoning will affect specific areas and change supply and demand dynamics.