Adelaide office net absorption nearly hits 10-year high in 4Q21

The city recorded net absorption of 11,900 sqm during the quarter.

According to a JLL report, the secondary grade office market dominated Adelaide’s office leasing market, with 11,900 sqm of positive net absorption in 4Q21, the second strongest quarterly total recorded in the market over the last 10 years. 

As a result, annual net absorption reached 17,700 sqm. This is a sharp reversal from the 2020 annual net absorption figure of -14,400 sqm.

Here’s more from JLL:

Prime grade net absorption was 2,700 sqm over the quarter. The majority of positive occupier activity was recorded in higher grade secondary stock. Quarterly secondary grade net absorption reached 9,200 sqm – the highest quarterly figure since 2Q17 (9,700 sqm). This was driven largely by activity in the public sector and defence sectors.

One project commences construction in 4Q21

A 4,600-sqm office tower at 57-59 Wyatt Street commenced construction in 4Q21. The building is 55% pre-leased by incumbent occupiers of the previous offices on the site and is being developed by Centuria Capital Group. This brought the total supply under construction to 93,200 sqm.

With the strong positive net absorption recorded in 4Q21, the overall vacancy rate decreased by 0.8 ppts to 15.6%. Prime grade vacancy decreased by 0.5 ppts to 11.9% in 4Q21 and has decreased 3.2 ppts over the past 12 months. Secondary vacancy decreased 1.0 ppt over the quarter to 18.0%, representing the first quarterly decrease after eight consecutive quarterly increases.

Transaction volumes reach AUD 290.4 million in 4Q21

Investment activity accelerated in 4Q21, reaching AUD 290.4 million. This was driven largely by the AUD 166.6 million purchase of 25 Grenfell Street by Centuria and MA Financial Group. The asset was divested by US fund Blackstone. This was the largest transaction recorded in the Adelaide CBD in 2021.

Value-add investment activity remained positive in 4Q21 with two purchases from investors with plans to refurbish the assets. Firstly, local developer Ginos Group purchased a 7,300 sqm office tower at 44 Waymouth Street for AUD 30.0 million from Aretzis Group. Secondly, Peligra purchased a 8,105 sqm asset at 80 King WIlliam Street for AUD 25.5 million.

Outlook: Emerging employment sectors to drive net absorption

The defence, technology and aerospace industries are gathering some significant clustering momentum in the CBD. This is expected to translate into positive net absorption in 2022 and continue the post-COVID-19 recovery in occupier demand recorded in 2021.

While yield compression has been recorded over the last 12 months, the Adelaide CBD still offers comparative value in the broader Australian office investment market. As at 4Q21, the average prime midpoint yield spread between Adelaide CBD and Sydney and Melbourne CBD is 100 to 119 basis points.

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