Adelaide Industrial m3property Insight

July, 2019

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Confidence in the South Australian industrial market continues.

Major projects drive steady growth

Confidence in the South Australian industrial market continues. It is being underpinned by widening of the states economic base through significant infrastructure spend and growth in defence industries, advanced manufacturing (renewable energy technologies, water recycling equipment, agricultural equipment, medical devices, space-related services, digital technology and photonics), mining and energy investment, agricultural exports and logistics. This is resulting in rising industrial building approvals, particularly for warehouse accommodation, after a period of sparse construction activity since the GFC.

Confidence has been further enhanced by recent announcements including the $600 million Whyalla steel plant upgrade and the over $1.2 billion Future Frigate and Future Submarine Programs at Osbourne Naval Shipyards. The latter is already seeing infrastructure spend ready for commencement of the projects in 2020 and 2023, respectively. A further $1.5 billion has been allocated in the 2019-20 budget towards Adelaide’s North-South Corridor between 2022-23 and 2027-28.

South Australia is also set to take a leading role in the operation of the Australian Space Agency with the establishment of Mission Control within the state. The Agency was established in July 2018 and has funding of $41 million over four years.


Neil Bradford


View Profile > SA

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Tenant demand strengthens

Prime leasing activity is strengthening, with available secondary space anecdotally starting to also dissipate. In particular, leasing activity within the new Lionsgate Business Park at Elizabeth (former GMH site) has risen. German-based battery company Sonnen, component manufacturer Levett Engineering, Genis Steel and three further advanced manufacturing firms have signed lease agreements there. Gross demand has also been boosted by Drake’s Supermarket committing to a 35,515m2 purpose-built distribution centre in Edinburgh (first stage).

Rents rising, as vacancy falls

Prime net face rents increased by 2.9%, while secondary rents rose 4.4% over the year to June 2019. A strengthening industrial market due to the projects above and increasing requirements from retailers is behind the falling vacancy and rising rents in Adelaide.

Newer buildings in prime locations close to major road networks that are designed to accommodate warehousing, distribution and logistics operations have seen stronger demand than the general market. These properties have therefore been able to achieve higher rents within the rental range.

Incentives for prime and secondary stock have been stable since 2016, at above historical average levels.

Investment activity slows after record year

The third and final cut to fully abolish stamp duty on commercial property transactions on 1 July 2018 had a positive impact on investment demand and is likely to continue to give South Australia a competitive edge over other states.

Strong investment demand drove a record year in sales volumes over 2018. Circa $370.79 million worth of transactions occurred (over the $5 million threshold). This represents the highest level since records commenced at m3property in 2006. Activity has slowed over 2019.



“Over the first half of 2019, there has been a lack of larger investment transactional properties sold, although some current offerings should finalise early in the second half of the year”

Neil Bradford

Yields firm

Yields in most precincts witnessed firming over the year to June 2019. Prime yields across the North and Outer North precincts ranged from 6.75% to 8.75%. Secondary yields ranged from 8.00% to 10.00% at June 2019. Variances beyond these ranges are largely attributable to smaller properties, those influenced by owner-occupier motivations, and/or have redevelopment potential.

There is potential for further yield firming, particularly for prime stock over the short-term as fundamentals strengthen and a potential further interest rate cut reduces finance costs.

Land values stable

Land values vary depending on location but have been stable in all precincts in the year to June 2019. According to DPTI, current long-term (2008-18) average consumption rates of industry zoned land fell to 69 hectares per year. This was down from 90-95 hectares per year over 2002-14 and has resulted in no upward pressure on values.