Adelaide office vacancy rate rises to 16.5% in Q4

Net face rents also grew 2.6% in the quarter.

According to a JLL report, quarterly net absorption was marginally negative at 964 sqm, after a positive quarter in 3Q22. The generally balanced net absorption figure was a result of occupier activity within newly-completed supply in the CBD, with some occupiers expanding their footprint while others consolidated from multiple locations. Occupier demand for modern efficient office space remains positive.

Headline vacancy increased to 16.5%, added JLL. Prime vacancy increased 1.5 percentage points (ppts) to 17.0% as secondary vacancy decreased 0.4 ppts to 16.2%.

Here’s more from JLL:

Supply pipeline remains elevated

One project reached practical completion over the quarter, delivering 1,975 sqm of office space to the market. The office building, developed by local developer Ginos Group, is situated at 274 Pulteney Street.

An additional 101,300 sqm of office space is currently under construction, with expected completion in 2023. A further 21,200 sqm of office space is under construction with expected delivery from 2024-2025. The largest projects are Charter Hall’s 60 King William development at 52-62 King William Street (40,000 sqm) and Walker Corporation’s Festival Plaza office building (40,000 sqm).

Uplift in face rents supports effective rental growth

Average prime net face rents increased (2.6% q-o-q) to AUD 440 per sqm per annum in 4Q22, supported by occupier demand for modern, efficient office space. This resulted in y-o-y growth of 5.1%. Incentives were broadly stable at 38.8%.  As a result, CBD prime net effective rents increased over the quarter to AUD 179 per sqm per annum (1.9% q-o-q). 

Prime yields softened 25 bps on the upper and lower end, resulting in a range of 5.13%-7.00%. The yield decompression reflects overall market sentiment amid rising cost of debt and an uncertain macroeconomic environment. 

Outlook: Large supply pipeline to push vacancy upwards

Occupier demand is expected to remain steady as 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 corporate occupiers look to upgrade into better quality office accommodation.

Both prime net face rents and incentives are expected to increase in 2023, which is likely to limit effective rental growth. Prime yields are forecast to continue on a decompression cycle, softening from historical lows.

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