Adelaide’s Office Market Heats Up

Increasing demand from the defence, mining and health industries has stimulated investor demand and new entrants into Adelaide’s tightening CBD office market.

South Australia's long-term prospects also look favourable, with Adelaide set to become the hub for the majority of Australia’s defence manufacturing and technology research, development and investment over the next two decades.

Mining giant BHP is scheduled to move into the new $250 million GPO Exchange building on Franklin Street in the December quarter of 2019 when Charter Hall's 19-floor tower is finished.

Boeing and BAE Systems have also expanded their footprint in the Adelaide CBD.

The limited supply of lettable space in the market has put pressure on rents, which have grown 5.5 per cent over the year.

Vacancy has also trended lower to 13.5 per cent with the prime grade sector down to 9.9 per cent.

“Adelaide is one of the office markets where sentiment has improved significantly over the past 12 months,”

“Defence, aerospace, technology and health are all growth sectors of the Adelaide market and are having a positive impact on leasing enquiry and activity.”

“We are also seeing Singaporean and interstate investors transact regularly in Adelaide,” Knight Frank chief economist Ben Burston said.

“This is due to improving conditions in the leasing market and attractive yields compared to the East Coast.”

Knight Frank found that in the six months to July 2019, average prime yields tightened from 6.76 per cent to 6.62 per cent, while the secondary market saw a fall in yields from 8.23 per cent to 8.15 per cent.

Year to date 2019 sale transactions currently stand at $285.37 million for properties above $10 million in Adelaide CBD.

At the current rate, sales volume should exceed the ten year average, especially given a number of office buildings in Adelaide CBD are currently under offer.

Earlier this month German investment house Real I.S. swooped on a Waymouth Street office block in the Adelaide CBD for $85 million on behalf of a group of institutions.

Other deals include Centuria Capital picking up 80 Flinders Street from a Lendlease-run fund.

The state’s strengthening economy has provided a platform for greater investment with activity levels at an all time high.

Commercial property sales in Adelaide also increased for the quarter ending July 2019, according to Corelogic.

The last quarter figures of $442 million from 30 sales, compared to the $111.1 million from 15 sales in the quarter to April 2019, and $125.9 million from 21 sales in the quarter to January 2019,

Yet much of Adelaide's projected future growth relies on interstate migration, with Melbourne's rapid rise, thanks in part to its stronger economy and increased job opportunities, to blame for the state's sluggish population growth.

The last time South Australia recorded a year of positive net interstate migration was 1991.

Recent Australian Bureau of Statistics figures found the state’s population growth rate has jumped to 0.9 per cent, from 0.7 per cent last March.

But the growth is still the second slowest in the country behind the Northern Territory, which dropped its population by 0.4 per cent.