Whilst the effects of the mining downturn continue to be felt in Perth with rising office vacancy rates, some positive changes to local planning scheme regulations should assist in reducing construction waiting times. We also look at the new unsolicited bids process for state owned assets.

Changes to local planning scheme regulations

Recent changes to local planning scheme regulations to come into effect in October 2015 are expected to reduce the wait time for some buildings or renovations by up to 60 days, reducing costs by up to $8,000.

The changes, hallowed as major reforms by Government and industry, alike allow homeowners and industry to bypass council planning approvals for single houses that comply with residential design codes. The rule will also apply to renovations such as a granny flat or new carport.

In addition there is now an obligation on local governments to prepare a development contribution plan for each area identified in a local planning scheme as a development contribution area, leading towards greater clarity moving forward.

Unsolicited bids/proposals process

The WA Government recently announced that it is developing an unsolicited bids process similar to the frameworks already in place in other states, to apply to state owned assets. The process will allow for the private sector to submit proposals to the Government that are not dependent on the standard tender process. These frameworks are aimed to encourage innovative development plans for currently under-utilised assets, for the benefit of WA as a whole.

It is expected that the process will be developed over the coming months, and being based on existing frameworks, will undoubtedly require the proponent of the bid to have to prove the unique advantage to be gained by going with their proposal, to encourage the Government to enter into exclusive negotiations with the bidder.

These proposals are being positively received by the property sector, who have been calling for such a process to be implemented for some time now. WA Lands Minister Terry Redman is driving the framework for assessing the bids and states that it is necessary to be very careful to try and find a balance between obtaining private sector innovation ideas and meeting probity outcomes.

Perth office vacancy rate still climbing

The effects of the downturn in WA’s mining industry continue to be felt by Perth CBD landlords, with the vacancy rate continuing to climb. According to The Property Council of Australia’s latest Office Market Report, the Perth CBD vacancy rate has risen from 14.8% in January 2015 to 16.6% in July 2015.

In comparison to the CBD vacancy rate of other capital cities in Australia, Perth has the highest, with the average capital city vacancy rate at 10.7%. The lowest CBD vacancy rate is Sydney at 6.3%.

The factors contributing to the continued increase in Perth’s CBD vacancy rate is the completion of new premium grade office buildings, which have been occupied by tenants from existing buildings and the negative demand for unoccupied office space due to the slowing of investment in new oil and gas and mining projects.

The impact of the ability for tenants to secure premium grade office space with satisfactory terms, is premium grade buildings currently have vacancy rates of 9.5%, whereas the vacancy rate for B-grade buildings is 21.5%.

With little expectation of any decline in the vacancy rate for some years to come, owners and operators of non-premium grade buildings will need to consider the future use of the building. These options may include:

• refurbishing the building to retain existing tenants or attract new ones
• re-branding the building to be attractive and affordable to a different tenant market
• riding out the downturn
• assessing the viability of converting buildings into residential apartments or potentially vertical aged care facilities
• considering the possible sale of the building

Next article: message from our Global Head of Real estate & construction