Adelaide office vacancies hit six-year high as pressure builds on ageing buildings

Adelaide’s ageing buildings are in a battle for survival, with office vacancies hitting a six-year high as businesses move to modern and hybrid workplaces.

The rate of empty offices in the Adelaide CBD has jumped to its highest level in more than five years as the city’s ageing buildings struggle to attract tenants in the aftermath of Covid.

The shift to hybrid working and a bleak economic forecast are putting added pressure on landlords to invest in upgrades to their older buildings, which are losing tenants to new developments in the city.

Figures from the Property Council show the city’s office vacancy rate increased to 16.1 per cent in January, up from 14.2 per cent six months earlier, and reaching its highest point since July 2017.

The national figure rose from 12 per cent to 12.5 per cent.

Office vacancies in Adelaide have hit 16.1 per cent – a five and a half year high.

Completion of Cbus Property’s 30,000sq m office tower on Pirie St contributed to the spike, with the Department for Infrastructure and Transport’s move to its new headquarters leaving close to 16,000sq m of vacant space at its former Grenfell St home.

Charter Hall’s $450m development on King William St and Walker Corporation’s Festival Tower project are expected to push vacancies higher when they’re completed later this year.

Figures from global property firm JLL show 58 per cent of office space in Adelaide is more than 30 years old – the highest proportion of any capital city in the country.

A “flight to quality” within the city’s office market means many of those older buildings remain vacant as businesses move to modern workplaces in a bid to attract and retain staff.

Property Council SA executive director Bruce Djite said businesses were increasingly looking for modern working environments in the wake of Covid, and that was putting pressure on landlords to upgrade their older buildings.

“We have seen record investment in Adelaide, despite the pandemic, resulting in new and ‘future proofed’ office accommodation growing our skyline,” he said.

Charter Hall’s $450m development at 60 King William St. Picture: Ben Clark

“What’s also interesting is that B grade office stock vacancy has decreased with landlords carrying out activities such as backfill asset refurbishments to attract tenants.

“With approximately 33 per cent of Adelaide CBD stock over 40 years old it’s encouraging to see this level of regeneration, reflecting a market voting with its feet.”

The shift to hybrid working has also enabled many corporates to cut costs by reducing their physical office footprints.

Telstra will reduce its city office space in Adelaide from about 20,000sq m to just 6000sq m later this year, when it moves into the Charter Hall development currently under construction at 60 King William St.

It will join NAB, which will occupy about 3700sq m in the building, down from more than 6000sq m at its current CBD home.

Both companies have said their new offices have been designed to support hybrid styles of work.

Lord Mayor Jane Lomax-Smith said there was a role for council to play in helping landlords adapt to evolving work habits.

“There has been a change in work life balance and we need to acknowledge that we may never return to full time office work,” she said.

“Quality office space is in high demand but in other cases refitting and repurposing will offer new opportunities for property owners. Council needs to help facilitate this.

“Council’s own workforce has returned to working in the office for the majority of the week and I’m glad that we’re showing leadership in this area.”