Transactions in Adelaide's office market were well above the 10-year average with $921.8 million of transactions over $10 million last year.
Knight Franks’s Adelaide CBD Office Market Overview attributed capital from interstate and offshore investors, particularly Singaporean capital, for the notable increase above the 10-year-average of $430.73 million per annum.
Knight Frank’s Ben Burston said investors were looking to Adelaide’s market due to its attractive value proposition compared to the lower yielding east coast markets.
The latest Savills Office Quarter Time report found Adelaide's office market had both the highest yield, at 7.25 per cent, and the strongest internal rate of return at 8.25 per cent.
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The upswing has largely been driven by improving leasing market sentiment thanks to sustained investment in defense industries and renewable energy projects, which Burston says is bringing new tenants into the market.
“In addition, the abolition of stamp duty on commercial property and attractive yields relative to the tight East Coast markets have put Adelaide firmly on the radar,” he said.
“The level of transactions in 2018 was significantly higher than the $417.70 million seen in 2017, and with A-grade space accounting for 46 per cent of the transactions, the demand for prime assets is evident.
“Alongside increasing demand in the prime market, investors are also seeking more affordable, secondary assets or those with value-add potential,” Burston said.
In the six months to January average prime yields tightened from 6.93 per cent to 6.76 per cent according to Knight Frank, while the secondary market saw a fall in yields from 8.49 per cent to 8.35 per cent.
Vacancy was 14.2 per cent as of January, down from 14.7 per cent six months prior. This is above the 10-year average of 11.3 per cent.
Adelaide CBD is expected to see 36,000sq m of office space come online in the next 12 months, with Charter Hall’s GPO Tower delivering 24,500sq m of this stock.
About 88 per cent of this space has been pre-committed by the SA Attorney General’s department and the Department of Human Services.
