New Tenant Trends May Change How Adelaide's Office Sector Operates

Adelaide’s office market faces challenging conditions, and tenant sentiment is shifting more towards the first impression 'wow' factor in a more selective search for accommodation.

CBRE Advisory & Transaction Services Office Director Andrew Bahr said quality was taking precedence in the current market, with demand being largely underpinned by lease expiries opposed to business growth.

“First impressions are more important today than ever before, with owners who can pull out the stops – including refurbished foyers, amenities and end of trip facilities – securing the bulk of tenant movements,” Mr Bahr said.

“The weaker demand conditions, while restrictive for market growth, have helped elevate the level of quality on offer, with owners having to adopt alternative strategies to entice new tenants, particularly in the secondary market.”

Mr Bahr said the outlook was more positive over the next three years, with it coinciding with the 10 year anniversary of the last major construction phase in the city.

“From 2017 to 2019, we expect to see a lot more lease expiry movement, which will help boost transaction activity. Furthermore, that flight to quality is as real in Adelaide as it everywhere else, which will continue to put pressure on the secondary market,” Mr Bahr said.

Mr Bahr said the development of Adelaide’s newest office precinct – the $235 million General Post Office (GPO) project – would help boost confidence in the market.

“The recent pre-commitment from the South Australian Attorney-General’s Department to occupy the first tower in the precinct is expected to create some movement in the market,” Mr Bahr said.

“The GPO development is a prime example of the emerging next generation of office accommodation, which will reshape our market and underpin tenant demand.”

CBRE’s latest MarketView report highlighted the completion of two major office refurbishments at 1 King William Street and 81 Waymouth Street underpinned a rise in office vacancy to 15.8% in July 2016 – the highest level in 15 years.

Rising vacancy has also seen a decline in effective rents and incentives now at all-time highs in the Adelaide CBD.