Adelaide office vacancies fall ahead of new projects

Adelaide was one of just two cities to report falling office vacancies in July, but new CBD projects will test whether landlords can fill emptied spaces.

Office vacancies in the Adelaide CBD fell to 14.2 per cent in July, according to the latest Property Council figures, and the city was one of just two nationally to report an improvement in the six-month period.

The statistics show that the vacancy rate fell from 14.5 per cent in January, amid limited new supply, with demand for space pushing net absorption to 6174sq m.

However with close to 130,000sq m of new office space expected to be added to the CBD market over the next three years, securing tenants for backfill space is expected to pose the biggest challenge for landlords.

Property Council SA executive director Daniel Gannon said the Adelaide office market continued to defy expectations, and currently had a nation-leading occupancy level of 71 per cent.

“While the office market has proven to be resilient and demand is in positive territory, there is

still uncertainty on the horizon,” he said.

“It is critical that governments and businesses continue to revitalise the Adelaide CBD and resist calls for a return to work-from-home mandates.”

Services Australia and Telstra will move into Charter Hall’s 60 King William St development. Picture: Giuseppe Tauriello

Brisbane was the only other capital to report a decline in vacancies, while the national rate increased by 0.8 per cent to 12.9 per cent.

In Adelaide, CBUS Property’s 30,000sq m building for the Department for Infrastructure and Transport on Pirie St is nearing completion, while Walker Corporation’s 44,000sq m tower at Festival Plaza and Charter Hall’s 39,000sq m development at 60 King William St will both come online towards the end of next year.

CBRE office leasing senior director Michael Pfitzner said while those projects were likely to be close to fully leased by completion, there would be an impact on backfill space.

“Going forward, supply will be the big story in Adelaide, namely its impact on the market over the next 12-36 months, with circa 130,000sq m of new development stock coming online,” he said.

“There will be an impact on the backfill accommodation, in terms of what refurbishment the respective owners undertake with their assets and, importantly, when they can complete it. In essence it will be a race to refurbish to beat the competition.”

A recent study by JLL revealed that a majority of tenants in the Adelaide market are looking for modern and fitted-out space rather than empty shells.

Of the 60 formal tenant briefs released across the South Australian market in the first half of this year, covering close to 67,000sq m, 53 per cent specified a fully fitted suite that required no further upgrades, while just 13 per cent wanted clear space.

JLL leasing executive Catherine Ward said most of the demand was coming from tenants seeking less than 1000sq m of space, and for them convenience and cost was key.

“We’re seeing very strong demand for high-quality premises in the sub-1000sq m category, and the majority of these tenants - 61 per cent - require or prefer an existing fit-out,” she said.

“Adelaide is a small tenant market, and for these tenants being able to access time and capital for fit-outs is challenging.”