Published: October 02, 2018

A POSITIVE economic outlook and commercial stamp duty abolition have created an attractive proposition for interstate investors claims a new global property group market report.

The Adelaide office sector is experiencing falling vacancy rates and historically strong investment activity as tenants look to expand with investors attracted to the value proposition following the July 1 stamp duty cut, according to Knight Frank. In the year to July, overall CBD vacancy fell to 14.7 per cent said Knight Frank’s research chief Ben Burston, who said the market will continue to tighten given positive tenant demand and no significant short-term increase in supply.

“A lack of recent development completions has helped the vacancy rate fall,” he said. “The second half of the year will see few completions with new supply limited until late 2019 when the GPO Tower on Franklin St completes, delivering around 24,500sq m of new space, although most of this is pre-committed.

“The increase in demand driven by business expansions and new tenants in the defence, engineering and non-profit sectors has contributed to increasing rent, particularly in the prime market.” Average rents for prime Adelaide CBD office space increased 2.8 per cent to $515sq m as prime incentives decreased and now averaging 34.5 per cent.

Business expansions have significantly contributed to the increase in Adelaide’s leasing activity said Knight Frank’s (SA) Martin Potter.

“BHP has pre-committed to 10,000sq m of Charter Hall’s GPO Tower, while Sealink let 1400sq m at 26 Flinders St and FMG Engineering signed for 1586sq m at 67 Greenhill Rd.

“The positive economic outlook and significant investment into south Adelaide will provide a further boost to the state economy through jobs growth and increased demand for office space.”

Sales transactions stand at $700 million this calendar year compared to $415 million for all of 2017. “The rise in investment activity highlights growing investor interest in Adelaide, with 75 per cent of transactions above $10 million involving new investors buying in SA,” Mr Burston said. “In the year to July, CBD prime yields decreased to 6.9 per cent while secondary market yields fell to 8.4 per cent.”

Strong transaction activity will continue for the next 24 months as significant infrastructure investment attracts interest said Guy Bennett, Knight Frank’s Partner, Head of Institutional Sales, SA and Victoria.

“Ten Gigabit Adelaide and $3 billion of investment in the northwestern sector of the CBD over the past decade, has transformed the city and subsequently resulted in an attractive proposition for capital,” he said.

“The most notable recent sale has been 80 Grenfell St by Blackstone to Centuria and Lederer Group in July, selling for $184.6 million. We also saw 11 Waymouth St sell for $202.5 million to Mapletree Investments, while the Santos Building recently sold for $101.35 million.”

Article by Richard Evans, originally appeared in The Advertiser on 2 October, 2018.