Adelaide overall office vacancy rate down to 16.1% in Q1

But prime office vacancies remain elevated at 17.5%.

According to a JLL report, occupier demand in Adelaide’s CBD office market was positive in 1Q23 with about 5,800 sqm of positive net absorption recorded over the quarter. 

Occupier centralisation from suburban office locations remained a key driver of the positive quarterly result. More broadly, occupier demand has been patchy. Net absorption over the 12 months to 1Q23 totalled -1,900 sqm.

Here’s more from JLL:

As a result of the positive net absorption in 1Q23, overall vacancy decreased by 0.4 percentage points to 16.1%. Vacancy within the prime grade has been trending upwards over the last 12 months as new supply creates churn in the market. Prime grade vacancy remains elevated at 17.5%.

Adelaide’s largest supply wave in history is currently underway

There are currently 101,300 sqm of projects under construction that is expected to complete by the end of 2023, equating to 7% of total stock. Occupiers have been quick to lease space in these new towers, with pre-commitments for this new supply reaching 71% in 1Q23. There is an additional 16,200 sqm of new office supply under construction that is likely to complete in 2024.

The two largest projects under construction are Charter Hall’s 60 King William Street tower (40,000 sqm), which is 86% leased, and Walker Corporation’s Festival Tower development (40,000 sqm), which is 65% leased. Both projects were underpinned by large public sector pre-commitments.

Average rents in modern, prime grade offices continue to increase

Average prime grade net face rents increased by 1.9% q-o-q in 1Q23. Occupiers are persistent with requirements for strong ESG credentials in their accommodation, which is supporting rental growth for modern, efficient prime grade office space. Prime incentives were broadly unchanged over the quarter. As a result, average prime net effective rents increased 2.7% q-o-q.

The yield decompression cycle that commenced in mid-2022 continued in 1Q23 with prime grade yields softening by 12.5 basis points (bps) on the upper end to a new range of 5.25%-7.00%. The secondary yield range also shifted with the upper end of the secondary range softening by 25 bps to a new range of 6.50%-9.50%.

Outlook: Occupier demand expected to remain positive in 2023

The stronger amenity in the CBD compared to suburban locations is expected to further support centralisation activity. Additionally, the tenant-friendly incentive levels currently offered in the market are expected to persist, supporting opportunistic upgrading of accommodation from occupiers. As at 1Q23, we are forecasting positive net absorption of 20,000 sqm in 2023.

Investment activity is likely to slowly re-emerge after a lull over the first half of 2023. Yields should continue to decompress over the balance of 2023, before stabilising in 2024.