Adelaide adds 21,000sqm to its office supply pipeline in Q2

Thanks to Kyren Group’s Franklin Street project.

According to a JLL report, Centuria Capital reached practical completion on a new 4,600-sqm boutique office asset at 57-61 Wyatt Street in the quarter. Pre-lease commitments were in place from incumbent occupiers of existing buildings on site, Hindmarsh and Wallbridge Gilbert Aztec (WGA).

The report says an additional 21,000 sqm was added to Adelaide’s supply pipeline under construction in the quarter, with local developer Kyren Group commencing construction on its 42-56 Franklin Street project. The development is currently without pre-commitment and will go ahead speculatively, placing further upward pressure on vacancy in the near term.

Here’s more from JLL:

Quarterly net absorption was moderately positive at 3,050 sqm, driven largely by occupiers opportunistically upgrading accommodation. However, most occupier activity was recorded in the smaller office occupier size cohort (<1,000 sqm).

As a result of the positive quarterly net absorption figure, headline vacancy decreased marginally to 16.0%. The prime vacancy rate increased for a fifth consecutive quarter to 18.4%, impacted by the backfill space created by Adelaide’s largest ever supply wave currently underway.

The yield decompression cycle continues

Average prime net face rents continued to trend upwards, increasing by 1.1% over the quarter. However, average prime incentives also increased marginally. This resulted in average prime net effective rents decreasing by 1.1%.

The yield decompression cycle that commenced mid-2022 continued in the quarter with average prime midpoint yields softening by 38 basis points (bps). As a result, average prime midpoint yields have decompressed by 75 bps over the last 12 months.

Outlook: Occupier demand to persist over the balance of 2023

Opportunistic upgrading of office accommodation, coupled with ongoing centralisation activity, is expected to drive occupier demand over the short term. Despite the positive net absorption outlook, it is expected that vacancy will remain elevated over the medium term as supply-driven back-fill space gets re-absorbed incrementally.

The yield decompression is expected to continue over the balance of 2023. There will be a lower number of assets brought to market over this period as owners wait for clarity in an uncertain economic environment.

Note: Adelaide Office refers to Adelaide's CBD office market (all grades).