Defence, aerospace drive Adelaide office market

The space and defence industries are proving the turning point for sentiment in the Adelaide office market.

The space and defence industries are proving the turning point for sentiment in the Adelaide office market, causing vacancy rates to fall over the past year.

Almost 200,000sq m of lettable space has been taken up over the past 12 months in Adelaide’s CBD, while vacancy rates fell to 13.5 per cent in the third quarter of the year, new data from JLL research has shown. Much of the confidence is stemming from strong interest in the defence, aerospace, technology and health sectors.

Boeing and BAE Systems recently expanded their footprint in the Adelaide CBD. The limited supply of lettable space in the market has put pressure on rents, which have grown 5.5 per cent over the year.

This upswing in confidence in office leasing has spread through market following the RBA’s two consecutive cuts to interest rates in June and July. This has led vacancy rates to fall in most capital cities through the September quarter. Nationally, the amount of lettable office space shrunk by 1 per cent to 8.1 per cent.

October’s rate reduction would have had no impact on the data. JLL’s head of research Australia, Andrew Ballantyne, said while the result was strong, businesses were still uncertain to make long-term commitments.

“The Reserve Bank has moved decisively to further ease monetary policy and support employment growth across Australia. However, business confidence remains patchy and some organisations will be reluctant to make long-term decisions until the economic outlook improves,” Mr Ballantyne said.

Melbourne’s office market continued to tighten through the September quarter to 3.7 per cent. Prime space now sit at 2.1 per cent, the lowest levels not seen since early 2008. The shortage has pushed up rents by 4.8 per cent and puts the market in a good position as the next wave of prime grade developments are completed in 2020 and 2021, says JLL’s head of leasing, Tim O’Connor.

Despite strong leasing interest in Sydney’ CBD and positive net absorption of 8600sq m in the third quarter, vacancy increased marginally to 4.6 per cent as backfill space became available.

Prime space is the biggest driver of the Brisbane office market, in both the CBD and surrounds. Overall vacancy in the river-city sits at 2012 levels of 10.9 per cent.