Adelaide office sector records highest net absorption since 2008

Net absorption was at 37,500sqm in Q3. 

Quarterly net absorption in Adelaide CBD’s office market was positive at 37,500 sqm in the quarter, the highest net absorption recorded since 4Q08, according to JLL. 

This was driven largely by occupiers moving into new office towers that were completed in the quarter. The quarterly figure was inflated as most of the vacated backfill space had already been accounted for over the previous 12 months.

Here’s more from JLL:

As a result, headline vacancy decreased marginally to 15.8%. The prime vacancy rate decreased to 17.2%, after five consecutive quarterly increases. The high vacancy rate continues to be impacted by the backfill space created by the largest supply wave recorded in Adelaide over the last 12 months.

Three completions in the quarter

Charter Hall Group reached practical completion on a new 40,000 sqm premium grade office asset at 60 King William Street. Services Australia pre-committed to 28,500 sqm to underpin the AUD 450.0 million development.

There is approximately 97,200 sqm in the supply pipeline currently under construction, with the largest asset being a 40,000 sqm office tower as part of the broader Festival Plaza redevelopment by Walker Corporation. Pre-leases signed include Flinders University, Deloitte, and Mott MacDonald. With the large supply wave underway, this places further upward pressure on vacancy in the near term.

The yield decompression cycle continues

Average prime net face rents decreased in the quarter by 1.0% q-o-q, and average prime incentives increased marginally. This resulted in average prime net effective rents decreasing by 1.0% q-o-q.

The yield decompression cycle that commenced mid-2022 continued in the quarter, with average prime midpoint yields softening by 50 basis points (bps) to 7.00% q-o-q. As a result, average prime midpoint yields have decompressed by 118 bps over the last 12 months.

Outlook: Occupier demand to stabilise over the balance of 2023

Opportunistic upgrading of office accommodations, coupled with ongoing centralisation activity, is expected to drive occupier demand over the short term. Despite positive net absorption recorded in the quarter, vacancy rates, particularly prime vacancy rates, are expected to remain high over the medium term as supply-driven backfill space is re-absorbed incrementally.

The yield decompression trend is expected to slow over the balance of 2023. As property owners continue to wait for clarity amid an uncertain economic environment, the number of assets brought to market remains low.

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