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Tide turns in Adelaide office market as economy fires

Property Markets / Outlook

Australia

Jun 22 2018

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The tide has turned in Adelaide’s office sector, with a resurgence of the state’s key growth industries boosting the market to its strongest position in several years. 

CBRE’s Andrew Bahr said aligning with general improvements and confidence in South Australia’s economy, the office market was rapidly transforming, returning to positive territory not seen since pre-GFC. 

“For the first time in more than two years, lease expiry is not the only reason tenants are enquiring on space. Expansion, growth and new entrants are becoming increasingly common, which is a clear indication of strong improvements in the market,” Mr Bahr said. 

“The engineering sector has traditionally been the best barometer of growth in the market and this sector alone is in growth mode. Coupled with increasing demand – be it direct or indirect, from the defence, resource and health sectors – the sentiment is shifting with a strong upswing. Unlike last time we saw this type of activity, this upswing is not just about resources, we now have three strong pillars of growth that should provide a more sustainable outlook longer term.” 

According to CBRE Research, vacancy of ‘new generation’ prime buildings built between 2006 and now is 7.5%.

Mr Bahr said with a number of large deals currently being finalised in the market, this vacancy was likely to fall even further in the next few months to only 5.5%. 

“The limited stock available in these “new generation’ buildings means it is getting more and more difficult to find more than 2,000sqm of contiguous space in these buildings,” Mr Bahr said. 

In the past three months, CBRE has completed numerous deals over 1,000sqm highlighting the strengthening conditions underway in the market. 

“The upturn in demand is likely to drive a quicker than expected tightening in incentives in the top end of the market – potentially as low as 25% by the end of the year,” Mr Bahr explained. 

“This will subsequently flow through to the better B-grade buildings in time and encourage further refurbishment and upgrades of some of the older style buildings, which has ultimately been the main reason the current overall vacancy rate is as high as it is.”

Photo by Marcus Wallis on Unsplash

 

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