Adelaide office net absorption rebounds to 5,100sqm in Q3

This comes after a negative absorption in the previous quarter.

Quarterly net absorption in Adelaide’s office property market rebounded to about 5,100 sqm, after a negative previous quarter according to a JLL report. Headline vacancy increased to 16.1%. Prime vacancy increased by 2.5% to 15.5% while secondary vacancy decreased to 16.6%.

The small tenant cohort continued to drive strong demand in prime grade assets, as multiple large tenant (>1,000 sqm) centralisations also positively contributed to quarterly net absorption.

Here’s more from JLL:

Stable incentives support effective rental growth

The CBUS’ 83 Pirie Street development reached completion over the quarter, totalling 30,000 sqm. The project completed with a pre-commitment level of 62%, with the Department for Infrastructure and Transport (DPTI) as the anchor tenant.

One project, 266-274 Pulteney Street (1,975 sqm), is set to complete in 4Q22. The development currently has no pre-commitments. A further six office projects totalling 107,500 sqm are being tracked, and have projected completion dates over 2023 and 2024. The largest of these projects is 52-62 King William Street (40,000 sqm).

Investment volumes subside in 3Q22

CBD prime net effective rents (PNER) increased over the quarter to AUD 175 per sqm per annum (1.9% q-o-q), as incentives remained broadly stable at 38.8%. As a result, prime net face rents increased (1.1% q-o-q) to AUD 428 per sqm per annum, reflecting y-o-y growth of 3.4%.

Prime yields softened 12.5 bps on the upper end to now range between 4.88%-6.75%. The softening is a reflection of overall market sentiment amid rising cost of debt and in an uncertain macroeconomic environment.

Outlook: Positive demand anticipated to continue into 4Q22

Positive demand in 4Q22 is expected to be a result of leasing activity from the technology and health sectors, and government departments. New stock completing in 2023 is anticipated to have an uplift in pre-commitment activity as these developments near practical completion and some corporates look to upgrade into better quality office accommodations.

Although sustained face rental growth is projected over the short term, the ongoing pressures of elevated vacancy in older prime grade assets is expected to increase leasing incentives over the short term, resulting in a decrease in effective rents.