The resources sector has been the driving force of the Western Australian economy for the past year. According to CommSec, Western Australia has the strongest economy in the country, with leading economic growth and investment. Western Australia had a 46.3% share of national export earnings in August 2011, and earnings are up by 26.6% over the year to August. In the last financial year more than 80% of WA’s export revenue was drawn from iron ore, gold, gas and liquid natural gas (LNG). More than 42% of WA’s export revenue is from China.
There are a record number of resource projects committed in WA, with forecast capital expenditure totalling more than $200 billion. Chevron’s $43 billion Gorgon LNG development is allocating $20 billion to local contracts. Chevron expects that 50% of the spending on their $29 billion Wheatstone LNG project will flow to Australian industry. Other projects in the pipeline include Inpex’s Ichthys gas field ($20.6 billion) and Woodside’s Pluto LNG ($14.9 billion). BHP Billiton is committed to 13 major projects with more than $36 billion in expenditure planned. Rio Tinto is a leading partner in nine major developments with more than $16 billion in expenditure planned. Some of these projects will operate for more than 30 years.
Companies’ preparing for these projects have leased a significant amount of space in the Perth CBD. In the past two years Chevron has leased more than 30,500 sqm, most of which is being used for the Gorgon project. Rio Tinto has leased more than 12,900 sqm, and BHP has leased more than 13,400 sqm.
In the 12 last months, major tenant moves by mining groups have accounted for 48% of the 60,700sqm of net absorption recorded in the Perth CBD (the 40 year average is 22,600 sqm). If engineering and construction firms that operate in the resources sector are included into the equation, this figure increases to more than 82% of the net absorption in the CBD. This illustrates the impact of the flow on effect from these resource projects. The Chamber of Minerals and Energy has forecast for every new job in the mining sector, there is a multiplier effect of four supporting jobs.
This strong demand has seen the vacancy rate in the Perth CBD fall to 3.2% to be the tightest major office market in Australia. Prime gross effective rents have recorded 20.4% growth in the past 12 months.
About the author
Hugh Peacock is a Research Analyst for Jones Lang LaSalle, based in Perth, Australia.