Adelaide CBD Office m3property Insight

June, 2019

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Adelaide CBD Office market expected to see vacancy rise in 2019 before falling over the following two years.

Fundamentals continue to improve

According to the Property Council of Australia Office Market Report, Adelaide recorded net absorption of 16,509m2 over the year to January 2019. This was above the amount recorded for the previous period and also above the amount achieved in the Sydney CBD office market over the same period. Net absorption was strongest for secondary grade buildings over the year.

The vacancy rate for the Adelaide CBD remains elevated but recorded a further fall of 0.5 percentage points from 14.7% in July 2018 to 14.2% in January 2019. The vacancy rate is now 2.0 percentage points lower than its peak of 16.2% in January 2017. Steady stock levels combined with above long-term average net absorption, placed downward pressure on vacancy. Vacancy rates for both prime and secondary grade stock declined over the year to January 2019 to stand at 1.5% and 14.6%, respectively.

Adelaide is at the bottom of the supply cycle. The next upswing is anticipated to begin in the third quarter of 2019 when Charter Hall’s 24,500m2 GPO Tower is due to complete. The building is over 90% pre-committed to by the Attorney Generals Department and BHP.


Simon Hickin


View Profile > SA

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Leasing market remains active

The majority of tenant enquiry is coming from tenants requiring circa 500m2. While a number of businesses are moving into the expansion phase, increased workspace efficiency has continued to result in a healthy portion of renewals taking a reduced amount of space.

While leasing demand has strengthened, there continues to be a state of oversupply in the market. As a result, there are still likely to be many opportunities for small- to medium-sized tenants entering the leasing market as well as for existing tenants whose leases are close to expiry. This has resulted in face rents being stable over the 12 months to March 2019.

According to m3property, net face rents as at March 2019 ranged from $370/m2 to $435/m2 for prime assets and $230/m2 to $355/m2 for secondary stock.

Incentives remain at elevated levels, with owners largely trying to maintain face rents in negotiations. Incentives for prime and secondary grade stock ranged from 30% 40% and 25% to 40% respectively as at March 2019.

Record-breaking 2018 for sales

The third and final cut to fully abolish stamp duty on commercial property transactions on 1 July 2018 has made a positive impact on investment demand. This should continue to give South Australia a competitive advantage over other states, making investment opportunities in South Australia more attractive.

The strong investment demand has driven record-breaking sales volumes over 2018. Circa $886.37 million worth of investment transactions occurred in 2018 (over the $5.0 million threshold). This was the highest level since records commenced at m3property in 2006. Comparatively the first four months of 2019 has started slowly with just the one major sale of 121 King Street for $82.25 million recorded. However, with 55 Currie Street and 25 Grenfell Street both on the market among other CBD assets the totals are expected to rise in the short-term.

Unlisted property funds, syndicates and private investors accounted for the majority of sales by value. Interest in Adelaide is expected to remain positive due to it being an attractive alternative to the tighter yields in the eastern seaboard states and stamp duty not adding to the cost of the purchase in South Australia.

Market yields as at March 2019 ranged between 6.00% and 7.00% for prime stock and 7.50% and 9.00% for secondary assets.

The outlook is positive

According to m3property Research, vacancy is forecast to decline slightly over the first half of this year, before rising again towards the end of 2019 when the GPO Tower completes and the subsequent backfill space is offered to the market. This backfill space will be a combination of direct and sublease vacancy. Vacancy is expected to continue its downward trend thereafter, albeit at a steady pace.

A total of 24,200m2 of net supply is expected to be completed over 2019. Beyond this, major developments are unlikely to go ahead unless significant pre-commitment is achieved.

We expect net face rents to increase by between 1.7% and 3.5% over the next three years as vacancy falls. Incentives are expected to start to peel back in 2020.

Yields are forecast to have reached the bottom of the current cycle and are expected to stabilise over the next 12 to 24 months.