2022-11-09-莱坊-Adelaide_Office_Market_September_2022_8页_6mb

Adelaide CBD Office Market Summary - September 2022

Core Content

The Adelaide CBD office market has demonstrated resilience through the pandemic, maintaining stability despite rising vacancies in other major cities. The market continues to show strong demand for high-quality, new-generation prime office stock, with minimal vacancy rates in prime buildings. This trend is driving value-add potential through the segregation of secondary stock and the anticipated completion of new supply in 2023.

Key Market Indicators (July 2022)

Market Trends

• Vacancy Rates: The overall vacancy rate in the Adelaide CBD remained at 14.2%, slightly down from 14.5% six months prior. However, the Adelaide Fringe vacancy rate increased to 10.4% from 10.1%.
• Prime Stock: Prime CBD vacancy rate is at 10.7%, with new generation stock having a tighter vacancy rate of 6.7% and older generation stock decreasing to 17.8%.
• Net Absorption: Net absorption in the CBD was 6,174sqm in the six months to July 2022, which is above the 10-year average of 2,538sqm. Prime net absorption was negative at -690sqm, while secondary was positive at 6,864sqm.
• Rents: Prime gross effective rents remained stable at $401/sqm, while secondary rents decreased by 1.83% from $273/sqm to $268/sqm.
• Incentives: Prime incentives increased to 31.2% and secondary to 36.7% by September 2022.
• Yields: Prime yields in the CBD softened by 13 basis points from 5.13% to 5.26%, converging with Sydney and Melbourne yields but diverging from Perth. The yield spread with Sydney is currently 73bps, compared to the 10-year average of 176bps.

Demand and Tenancy Activity

• Tenant Interest: The leasing market remains active, with interest from national corporates, governments, and global enterprises. Major tenants include Westpac Bank, WSP/Golder, and Accenture.
• Recent Moves: Accolade Wines relocated to the CBD, occupying 1,462sqm. The Department for Infrastructure and Transport pre-committed to 83 Pirie Street, occupying 18,524sqm NLA.
• Pre-Commitments: Several developments have secured tenant pre-commitments, including 60 King William Street (79.13% committed), 83 Pirie Street (60.94% committed), and Festival Plaza (50.56% committed).

Supply Forecast

• New Supply: A significant forecast of new supply is expected for 2023+, with 116,500sqm of office space planned for 2023, 20,000sqm in 2025, and an additional 86,000sqm mooted.
• Major Developments:
  • 60 King William Street (43,600sqm)
  • 83 Pirie Street (30,360sqm)
  • Festival Plaza (44,500sqm)
  • Central Market (21,000sqm)
  • 185 Pirie Street (6,300sqm)
  • 299 Pirie Street (6,160sqm)
  • Trinity City (65,000sqm) – expected to commence in 2023.

Investment Activity

• Sales Volume: Total sales volume for CBD assets in the six months to July 2022 was $113.65 million, with an additional $190 million under contract.
• Notable Sales:
  • 63 Pirie Street (Confidential)
  • 99 Gawler Place (c70.00M)
  • 210 Grote Street (50.00M)
  • 131-139 Grenfell Street (20.90M)
  • 91-97 Grenfell Street (81.35M)
  • 139 Frome Street (11.40M)
• Investment Trends: Institutional buyers are showing interest in core trophy assets due to their certainty and liquidity. The market is seeing a bifurcation between buyers interested in core assets and those looking for value-add or opportunistic investments.

Fringe Market Overview

• Vacancy: The Adelaide Fringe vacancy rate increased slightly to 10.4% from 10.1%.
• Prime Vacancy: Rose to 5.9% from 20.4%.
• Secondary Vacancy: Decreased to 11.8% from 16.8% due to the withdrawal of C-grade stock.
• Rents: Prime gross effective rents decreased from $371/sqm to $355/sqm, while secondary rents increased from $265/sqm to $275/sqm.
• Yields: Prime yields in the Fringe softened by 60bps to 6.05%, and secondary yields by 50bps to 6.53%.

Investment Potential

• Opportunities: Secondary stock refurbishment is becoming a key strategy as owners seek to attract tenants with better quality spaces.
• Yield Spread: Adelaide's yields remain attractive compared to Perth, with a spread of 116bps, and are converging with those on the east coast.

Research Contacts

• Amanda Azariah – Research
• Ben Burston – Research
• Tristan Mellett – Research
• Max Frohlich – Institutional Sales
• Oliver Totani – Investment Sales
• Jack Dyson – Investment Sales
• Nick Bell – Valuations & Advisory
• Martin Potter – Office Leasing
• Rory Dyus – Office Leasing

Recent Publications

• The report highlights the ongoing developments and market trends in the Adelaide CBD office sector, emphasizing the importance of quality, modern stock and the value-add potential in the secondary market.

Important Notice

This report is for general information only and should not be relied upon for decision-making. No liability is accepted for any loss or damage resulting from its use. Reproduction is not allowed without prior written approval.