Adelaide CBD office vacancy rate at 5-year low
Property demand in the Adelaide CBD, especially from defence companies, is growing with the office vacancy rate now at its lowest level in five years, a new report shows.
Adelaide’s CBD office vacancy rate has dropped to its lowest level in five years on the back of growing demand from the state’s burgeoning defence sector.
The Property Council’s biannual office market report reveals the CBD vacancy rate has dropped to 12.8 per cent, down from 14.2 per cent in February and hitting its lowest point since February 2014.
It is the fifth consecutive decline in vacancy reported by the Property Council.
Positive demand of 15,824sq m and office withdrawals of 7074sq m contributed to the latest decline.
JLL head of leasing Tom Budarick expects occupier demand to remain positive over the next 12 months.
“The demand for modern office accommodation from the defence sector cannot be understated,” he said.
“There are a number of deals from defence-related occupiers that will boost absorption in the second half of 2019.
“On the back of this positive occupier demand, we’ve seen tangible improvement in property owner income levels over the last 12 months.
“Average prime incentives have decreased for a third consecutive quarter in Q2 2019, and as a result, annualised average gross effective rents have increased by 5.4 per cent.”
Despite the positive headline figures, Property Council SA executive director Daniel Gannon said the State Government’s proposed land tax changes would undermine momentum building in the market.
“At a time when 26,070sq m of space is due to come online in the second half of 2019, followed by 17,786sq m in 2020 and 43,636sq m after that, risky tax changes are the last thing we need,” he said.
“Recent announcements in the space and defence industries along with an important City Deal for Adelaide should be the economic catalyst South Australia needs, driving vacancy rates down and stimulating the city’s core.
“However, instead of doubling down on these economic green shoots, the State Government is now caught up in a jellyfish of destructive land tax changes that could scare off investors and hurt superannuants and their nest eggs.”
While the CBD vacancy rate continues its decline, vacancies in the fringe increased from 12.6 per cent to 13.1 per cent in the six months to July.
Savills SA office leasing director Adam Hartley said that was in part due to tenants seeking access to the Ten Gigabit high speed internet network, convenient public transport routes and competitive rental rates.
“The typical fringe market has seen an increase, albeit small, in vacancy rates as tenants have moved to more efficient buildings or moved into the CBD,” he said.
“The move to upgraded buildings has placed pressure on the availability of good quality office accommodation, and there is a genuine need for more new or fully refurbished office buildings.”
CBRE office leasing senior director Andrew Bahr said the ongoing flight to quality was driving down vacancies in higher grade buildings.
“The vacancy in new-age buildings constructed post 2006 is now less than 3 per cent and there is a race among the landlords of older A-grade CBD assets to secure active tenants,” he said.