With a rising new generation of towers and tenants, Adelaide’s CBD is undergoing a paradigm shift from its long reign over the oldest office stock profile of any of Australia’s major capital cities. Billions of dollars of investment are being poured into the development of new office eyries on its once seemingly stunted skyline. And coinciding with the emerging new CBD landscape, there has been a changing of the guard in the city's tenant demand profile as the "brain drain" out of South Australia has reversed. “We’ve always struggled with population growth rates and brain drain of young professionals out of the state,” Adelaide Economic Development Agency executive manager Greg Ratsch said. “But what we’ve seen during and since Covid is increasing numbers of young professionals either coming to Adelaide or not leaving Adelaide. “We’ve also seen significant growth in technology companies, up 236 per cent year-on-year. “Compare that to professional services which was up 64 per cent, healthcare up 48 per cent and financial non-banking up 150 per cent. “There has been a real move away from the demand driver of government, which has traditionally underpinned a lot of development in Adelaide.” ▲ Quintessential Equity’s planned Entrepreneur and Innovation Centre in the Lot Fourteen precinct, Adelaide. A report from BIS Oxford Economics indicated the city’s white-collar jobs were expected to grow at an annual rate of 2.3 per cent on average in the next four years—jumping from 1.4 per cent a year during 2016 to 2021.  The catalyst for the shift has been a widening of the city's economic base through the state government targeting growth in the technology, defence, food, wine and agribusiness sectors. About 135,000sq m of office space is under construction.  Property heavy-hitters including Charter Hall, Cbus Property, Quintessential Equity and Walker Corporation have staked their claims across the CBD, strategically investing in office developments to expand their footprints. Among the projects are the $1-billion Festival Tower, $450-million 60 King William Street, $400-billion Entrepreneur and Innovation Centre, part of the Lot Fourteen precinct, and $300-million 83 Pirie Street. Also in the pipeline are two proposals vying to build Adelaide's tallest buildings—a 160m tower rising above the city's heritage Freemasons Hall and a 180m behemoth (by Adelaide standards) dubbed The Dominator. Only the former of the two planned mixed-use developments incorporates an office component. Multi-billion-dollar developer Gurner is also moving into the Adelaide market, partnering with Kennards Self Storage for a $1.25-billion mixed-use CBD precinct on the 1.7ha former Australia Post site at 237 Grote Street. ▲ A render of Cbus Property’s tower mooted for 83 Pirie Street. “What we’re seeing is a large influx of supply under construction and because of that there's now a bit of wait-and-see going on,” Ratsch said. “Plenty of proposals are being put up. But the question will be can they get the precommitments to stack them up.” According to M3Property’s latest Adelaide Market Snapshot, the next wave of new supply—driven by major commitments to government departments—will be added to the market from the end of this year.  “The Adelaide CBD has an ageing stock profile with a large proportion being greater than 30 years,” M3Property’s commercial director Simon Hickin said.  But he said a flight to quality was rapidly reshaping the market and had led to a significant fall in vacancy in A-grade buildings.  “Occupier demand has shifted to higher-quality, newly constructed prime space, with tenants critical of the level of amenity and typically expecting a high level of end-of-trip facilities,” Hickin said. “Larger corporates and government are also putting increasing emphasis on the building’s energy efficiency … [and] seeking new developments with higher ESG [environmental, social, and governance] credentials.”  As a result, he said, new and modern stock had a greater ability to achieve superior effective rental growth and older stock would likely be impacted as supply was added to the market.  ▲ The skyline of the Adelaide CBD will change dramatically during the next few years as more and taller tower projects come to fruition. Prime net face rents lifted during 2021, while secondary rents were stable.  The latest data for the March quarter this year showed prime net face rents ranged from $420-$475/sq m, and secondary net face rents from $230-$355/sq m.  Hickin said there had been strong interest in the Adelaide market from interstate institutional investors as well as offshore groups and privates, and record yields were being achieved.  During the March quarter, prime yields ranged from 5 per cent to 6.5 per cent and secondary yields from 7 per cent to 8.5 per cent.  The largest transaction in 2021 was the acquisition of the Grenfell Centre—comprising almost 25,000sq m of office space over 23 floors—for $166.6 million by Centuria Capital and MA Financial Group. “We always used to have to sell Adelaide to people, it was almost apologetic,” JLL's SA-based head of sales and investments, Roger Klem, said. “That’s no longer the case. Everybody knows about it and everybody is here. “The big institutional investors and developers are in town and that in turn has made it easier for the smaller players to come in behind them. ▲ A concept rendering of the proposed a 160m tower rising above the city's heritage Freemasons Hall. “It's been building for the better part of five years. Landbankers have been buying up because it was quite cost effective but land values have moved dramatically.” In the past two years, values have surged as the land grab for key sites within the city has escalated. They now range from $3000-$4000/sq m in the CBD’s south-west to more than $25,000/sq m in the prime Rundle Mall precinct. “Adelaide has traditionally been a market that had a higher proportion of ownership by local families,” Ratsch said. “But we’re seeing, particularly in terms of recent asset sales, increased interest from institutional investors either offshore or from the eastern states. “The issue now is not the lack of interest in Adelaide, it’s bringing property to market and putting together a deal. There's a shortage of opportunities.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.