The Adelaide commercial office market is the most affordable in Australia, and some emerging trends will make it more lucrative for many businesses to establish themselves in the city.
Vacancy rates
The overall vacancy rate in the Adelaide CBD has increased to 17% off the back of new supply.
An unprecedented volume of stock (92,016 sqm) is set to hit the market by year-end. Though a significant portion of this stock is already pre-committed, it should push the vacancy rate up further. Notable buildings coming online include Charter Hall's 60 King William Street and Walker Corporation's Festival Tower.
Here are some more trends affecting the market:
Market resilience - Adelaide's office market has shown remarkable strength compared to other cities. Before Covid, for example, Adelaide's office vacancy rate was 14% and had only jumped by 2% by the end of 2022. Sydney and Melbourne, on the other hand, saw an increase of 7% and 11% respectively. The city's resilience can be partially credited to ongoing Government leasing demand, a good mix of SMEs and a comparatively high office occupancy rate.
Flight to quality - The flight-to-quality trend remains strong, with space becoming more affordable and gaining popularity amongst tenants looking to attract and retain talent.
Older stock - A large amount of Adelaide's secondary stock requires refurbishment. We already see a rental divide between new/refurbished and secondary stock. And this gap will only increase over the coming years.
Residential conversions - Adelaide's Lord Mayor, Jane Lomax-Smith, recently labelled much of the city's secondary stock "unusable, unwanted, unsustainable and ugly" and called for under-utilised office spaces to be converted into residential dwellings. Clare Mockler, the City of Adelaide's CEO, welcomed the idea of a pilot study and was recently informed by the State Commission Assessment Panel that an application for an office-to-residential conversion was being processed for the first time in nine years. It will be interesting to see the outcome of this trial and its knock-on effect.
Rents and incentives
Adelaide's Net face rents softened over the last quarter, now sitting at 460 psqm for prime grade and 284 psqm for secondary.
This has been mainly driven by increased supply and backfill availability, which puts tenants in a position of strength. Incentives are hovering in the mid-to-high 30s, depending on the grade and location.
Subleasing
Adelaide's sublease availability remains relatively steady at 5,847 sqm (0.4% of total stock), well below its previous peak in 2020/21. This is due to a number of factors, including:
Physical occupancy - Adelaide has experienced a solid return-to-office, with the occupancy rate nearing pre-covid levels.
Smaller tenants - Larger organisations are typically looking to cut costs through commercial subleasing. However, the Adelaide CBD attracts a mix of small-to-medium businesses and government entities.
Less exposure - Around the country, sublease availability is primarily fuelled by financial and technology companies looking to eliminate excess space off the back of cost-cutting, headcount reductions and adoption of hybrid working arrangements. However, Adelaide has limited exposure to these types of companies.
Tenant Representation Services, Adelaide
Tenant CS is a commercial tenant advisory service that offers tenant representation services in Adelaide. We also cater for businesses across Australia, in cities such as Sydney, Melbourne, Perth, Brisbane and Canberra, but also in regional areas.
We represent you, the tenant, and our in-depth knowledge of the Australian leasing market gives our clients the competitive advantage when it comes to finding a space or negotiating a commercial lease and more!
So, if you’re on the hunt for tenant representation in Adelaide, get in touch with our team today!