Office vacancies will more than double and rents will slump in Perth and Brisbane as mining investment slows and firms cut costs, Morgan Stanley says.
Vacancies in Perth's central business district will surge to 17.5 per cent in the next three years from 6.5 per cent now, and in Brisbane will soar by about 10 percentage points to 23 per cent, analysts led by Lou Pirenc wrote in a note this week.
Rents could drop by as much as 9.3 per cent in Perth and 6.4 per cent in Brisbane by next year, the bank forecasts.
Falling commodity prices and rising costs have led to major resource producers deferring or cancelling projects.
The Australian government forecasts slower growth this month when it released federal spending plans for the fiscal year starting July 1 as the country's record mining investment boom peaks and economic growth in China, its largest trading partner, slows.
"As mining investment has been a robust source of white-collar employment growth in the past decade, we believe the associated unwind in investment in the coming years will adversely impact CBD office demand," Pirenc wrote.
The mining investment boom, which is widely expected to peak this year, may have already reached its high point last year, says Morgan Stanley.
With 27 per cent of Perth's city centre workforce and 18 per cent of Brisbane's directly or indirectly employed by the resources industry, the slowdown will weigh on office demand and the performance of landlords, Morgan Stanley says.
Its forecasts are based on an assumption that engineering- and building-related investment tied to mining and oil and gas industries will fall 40 per cent in the next three years.
If resources investment slows by only 5 per cent over the same period, vacancies would rise to almost 8 per cent in Perth and 14 per cent in Brisbane, Morgan Stanley says.