Stamp duty cuts on commercial property have attracted interstate and overseas investors to SA

Interstate investors energised Adelaide’s office investment market in 2018, with close to $1 billion worth of CBD property changing hands during the year. Here are the top four sales.

Close to $1 billion worth of CBD office property changed hands last year.

• Foreign and family investors who own Adelaide’s biggest towers
• Local, interstate and foreign families control Rundle Mall property
• Strong yields and stamp duty abolition pull in east coast buyers
• Blackstone sells Adelaide office tower for $184 million

Interstate investors energised Adelaide’s office property market in 2018, with close to $1 billion worth of CBD property changing hands during the year.

The abolition of stamp duty on commercial property, which came into effect in South Australia in July, attracted a wave of capital from the eastern seaboard and is expected to stimulate further investment this year.

Property sales agents say major defence contracts, a resurgent mining sector and the recent announcement that Adelaide will host the country’s space agency at the old Royal Adelaide Hospital site, have injected confidence in the local market.

With A-grade buildings in the CBD fetching up to $7860 per square metre and attracting yields up to 200 basis points higher than Sydney and Melbourne, CBRE director Ian Thomas expects interstate and overseas investor interest to escalate in the coming months.

“In 2018 the market welcomed an array of interstate and offshore purchasers including parties from Singapore, Melbourne and Sydney,” he said.

“This interstate and offshore buyer trend will continue in the new year as groups from the eastern seaboard are priced out of their markets and look to Adelaide for value and geographic diversification.

“It’s probable we will see an increase in interest from parties based in Hong Kong and China, and renewed interest from some European groups.”

80 Grenfell St sold for $184.6 million in 2018.

60 Flinders St sold for $101.35 million.

The $184.6 million sale of the Bendigo and Adelaide Bank building to Sydney property fund Centurial Capital and Rich Lister Paul Lederer headlined last year’s sales haul, while Melbourne investment groups Wingate and IPG finalised their $103.5 million purchase of 77 Grenfell St last month.

Colliers International director Alistair Mackie said a series of positive economic announcements during the year had instilled confidence in the Adelaide market.

“With the full effects of a new State Liberal government, abolishment of stamp duty, record level of Commonwealth Government defence spend and resurgence of the mining sector to be felt in 2019, we expect the next 12 months to outperform what has been a really strong 2018,” he said.

“In anticipation of increasing capital inflows from our eastern seaboard cousins, as they face ever diminishing return profiles, we are confident they will now accept the Adelaide investment offering as a bridge close enough to cross.”

77 Grenfell St sold for $103.5 million.

12-26 Franklin St sold for $135 million (50 per cent of property).

JLL head of sales & investments Roger Klem said diversification of the state’s economy into sectors including defence, medical, education and technology, had been a plus when promoting the state to potential buyers.

“Confidence in South Australia is rising fast and the state will clearly benefit from likely state migration, with huge demand for employees into the defence, medical and education sectors,” he said.

“We expect 2019 demand will outpace supply, pushing value and tightening yields as the risk profile of the city improves.

“Adelaide now enjoys a multitude of business opportunities that greatly minimises the risks that come from having reliance on single industries.”

In office leasing, BHP’s commitment to more than 10,000 sqm in the GPO Exchange building on Franklin St was the biggest deal last year, reflecting an ongoing flight to quality from tenants.

CBRE senior director Andrew Bahr expects vacancy rates in the CBD to fall this year given the limited number of new office developments in the pipeline.

Charter Hall’s GPO Exchange project is the only major office building currently under construction in the CBD, while developers are currently pitching to the Department of Human Services, which recently announced it was in the market for 29,000 sqm of space by 2023.

“The top end of the market is tightening as newer generation office buildings edge towards the 5 per cent vacancy range,” Mr Bahr said.

“This figure is expected to fall closer to 0 per cent by early 2019 because of several major deals in the pipeline that are close to conclusion.

“Looking forward, with top-of-town assets near full and few large-scale leasing opportunities for tenants available, older A-grade and refurbished B-grade assets are likely to be the winner in 2019.”

Charter Hall regional development director Simon Stockfeld and state general manager Kimberley Gillan at the GPO Exchange office development project. Picture: Naomi Jellicoe

Charter Hall regional development director Simon Stockfeld urged the State Government to continue its support of new and innovative industries.

“The State Government needs to continue to focus on key infrastructure projects to support growing industries and population growth,” he said.

“A big drawcard for Adelaide is its focus on technology and innovation, which will continue to be a significant factor in encouraging new business to the state.”

TOP OFFICE SALES 2018

80 Grenfell St: $184.6 million — purchased by Centuria Capital and Lederer Group

12-26 Franklin St (50 per cent): $135 million — purchased by Charter Hall

77 Grenfell St: $103.5 million — purchased by Wingate/IPG

60 Flinders St: $101.35 million — purchased by Nikos Property Group