Property Council figures show 17 per cent of CBD office space vacant

The rate of empty CBD offices has spiked to its highest level in decades as tenants flee the city’s ageing buildings for newer towers.

The rate of empty offices in the CBD has jumped to its highest level since the late 1990s, as a wave of new developments pile more pressure on the city’s ageing buildings.

Property Council figures show the city’s office vacancy rate increased to 17 per cent in July, up from 16.1 per cent six months earlier.

Adelaide has the highest vacancy rate of all capital cities monitored by the Property Council, followed by Perth and Melbourne.

The national CBD figure rose from 12.6 per cent to 12.8 per cent over the past six months.

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

In the six months to July, close to 20,000sq m of net absorption was reported for A-grade office space, as tenants favoured new higher-quality accommodation.

That was offset by falling demand across B, C and D grade assets.

Property Council SA executive director Bruce Djite said the figures reflected a continued flight to quality trend across office markets.

The Adelaide CBD city skyline. Picture: Cushman & Wakefield

“It is encouraging to see that Adelaide’s skyline is being renewed before our eyes with attractive, high-quality office space that is in high demand,” he said.

“With unemployment hovering at multi-decade lows and strong competition for talent, companies are adjusting their leasing strategies and seeking high-quality space.”

Completion of Cbus Property’s 30,000sq m office tower on Pirie St has contributed to the recent spike in vacancies, 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 at 60 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.

CBRE office leasing director Andrew Bahr said landlords were currently in a “race to reposition and refurb” some 70,000sq m of backfill space that was being created as a result of a new wave of developments across the city.

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

Telstra has reduced its city office space in Adelaide from about 20,000sq m to just 6000sq m as part of its move into the Charter Hall development, joining NAB, which will occupy about 3700sq m in the building, down from more than 6000sq m at its previous CBD home.

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

JLL SA head of office leasing Tom Budarick said tenants were willing to pay higher rental premiums in order to secure accommodation in newer offices.

“Cost seems to be a secondary consideration in relocation decisions, with efficiency, amenity, and quality of space the highest priority,” he said.

Colliers state chief executive James Young said that while vacancy rates would remain elevated as new supply was added to the market, they would stabilise into 2024, as “the end of the current supply cycle comes to fruition”.