Adelaide Grade A office rents rise by 1% in Q2

Supply constraints will continue to drive rental growth.

In Q2 2024, the average net face rent for A-grade new offices (built on or after 2022) in Adelaide increased by 1.0% QoQ according to Colliers data, reaching $606 per sqm p.a., despite a 4% rise in outgoings. This growth is expected to persist due to supply constraints. 

For A-grade assets built before 2022 and B-grade assets, Colliers adds that the average net face rents saw more modest QoQ growth rates of 0.5% and 0.3%, averaging at $451 per sqm p.a. and $337 per sqm p.a., respectively. 

“Gross incentives exhibit significant variation across different asset types. Average incentives for new A-grade offices, on average, sit at 25%, while older A-grade properties hover at 37% and B-grade properties offer 43%. Given the substantial vacancy, incentives are expected to remain sticky for older stock,” the analyst said.

Here’s more from Colliers:

Adelaide CBD is experiencing constrained growth in new developments. Currently, only one project is underway at 52 Franklin Street. This development is expected to deliver 22,000 sqm of space by late 2024 or early 2025, with a current pre-commitment rate of 6%. 

Additionally, the reconstruction project at 150 Grenfell Street over approximately 9,100 sqm has achieved significance due to RAA securing all but 100 sqm on the ground floor. A minimum 2.5-year construction timeline indicates that no further supply will be added until at least late 2026. The ongoing repositioning initiatives for 100 King William Street, 30 Pirie Street, and 45 Pirie Street have collectively secured leases for approximately 30% of the space.

In the first half of 2024, enquiries for Adelaide CBD market increased by 6% across all size ranges compared to the same period in 2023. The size range of 1,000 sqm to 2,999 sqm experienced the most significant uptick, with an 8% rise. The primary driver behind these enquiries was relocation, accounting for 58%. This is followed by new business unit and expansion space, representing 14% and 13%, respectively. 

The vacancy rates vary significantly across different assets. In the new office sub-market, availability remains in the single digits. However, backfill A-grade properties are currently experiencing a vacancy rate exceeding 30%.