WA Property Market Update – August 2021
Spring has sprung! The weather is starting to heat up, perhaps trying to reach the scorching heights of the WA property market, particularly in the residential sector. Despite slightly more subdued conditions for office and commercial real estate assets in 2021, the update through August on the prospects for the broader property market in the state remain positive as we continue to make our way through the COVID-19 pandemic.
WA’s relative success in warding off the worst of the pandemic (and the economic turmoil it has caused elsewhere) has put the state in a good place to continue the upwards trajectory we’ve covered in the past few property market updates.
Office/Commercial Property Market Update August 2021
If you take a stroll through the Perth CBD, or any high-density office district for that matter, you wouldn’t have to look far to find a vacant office. In fact, Perth’s office vacancy rate rose to 20% in the six months from July 2020 – January 2021 (up 1.6%), thanks in part to businesses embracing a more flexible working from home policy brought about by pandemic-related office closures. Owners of office-based assets are finding it difficult to secure tenants for larger-scale properties, even despite many offering considerable incentives or reducing their asking price for rent.
A recent upturn in purchase activity is a strong indication that the market has somewhat bottomed out and may be slowly on its way back up the property clock. West Perth has a few good examples of this, where three office buildings have sold this year with sale prices between $4,150,000 and $7,500,000, and market yields of between 6.27% and 7.81%. Importantly, these were sold with tenants already in place, or due to commence their lease soon after purchase. Such transactions are indicative of the “green shoots” we’ve touched on in previous property market updates, and now that we’re reviewing August it is promising to see these asset sales offering investors great potential yields.
Residential Property Market Update August 2021
The boom in construction contracts being signed off the back of generous government building incentives has had a few notable effects. For one, the availability of vacant land has declined sharply, even in areas that were considered to be over-supplied not that long ago. Secondly, and perhaps most noticeably, skilled tradespeople are in such high demand that residential property construction times have basically doubled, a figure which looks set to increase as construction materials are harder to come by and skilled workers are also in short supply.
Despite shortages and delays, strong demand in the residential property market in the lead up to August (and likely for the foreseeable) has further increased prices around WA, especially in Perth. Subsequently, many homeowners find themselves in very strong equity positions and are looking to upgrade their homes – either to sell them on for a profit or for the enjoyment of themselves and their families. Kitchen, bathroom, and floor covering upgrades are high on the list for most homeowners, with the more significant projects feeling the same pinch as new construction in terms of delays and skilled tradespeople shortages.
When they’re done well, renovations are proving to be a great move for homeowners when it’s time to sell. Some recent examples around Perth have seen tastefully upgraded homes sell for significantly more than their unrenovated counterparts within the same area. That said, current shortages have increased the price of construction and renovation, to the point where cutting costs is the key to getting a strong return on investment if you’re upgrading to sell. The key is to do as much as you can without trades (where appropriate and safe to do so), and when it comes to selecting tradespeople, ensure you get at least three quotes – you might be surprised at the difference between quotes in this climate.
A quick look at the rental market in Perth sees the vacancy rate creeping over the 1% mark for the first time since the June quarter 2020. Median rental prices for houses and units continue to climb, and while borders remain tightly locked down causing more people to stay in WA long-term, this looks like the state of play for a while to come.
As we mentioned, WA’s strong resistance to COVID-19 and significant budget surplus has clearly had a positive impact on the property market. While it has unfortunately reduced access for some people (particularly renters, as well as first home buyers looking to buy established property rather than build); many homeowners are enjoying great equity positions, and savvy renovators are turning tidy profits when it’s time to sell up.
If you’d like to know what your equity position is, either to refinance or see what you can unlock to invest in the property market, get in touch with the Finance team at McKinley Plowman on 08 9301 2200 (Joondalup), 08 9361 3300 (Victoria Park), or contact us via our website.
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