Adelaide has enjoyed some level of resilience over past months when compared to the other states as we deal with COVID-19. While demand has remained subdued, we haven’t seen the emergence of any real sublease market like many Eastern Seaboard locations.
Evidencing this, the latest Property Council of Australia office vacancy figures show only a marginal increase in the level of office stock empty in the Adelaide CBD, with vacancy rates edging from 14% to 14.2% in the first half of 2020.
The SME end of the market has been relatively unchanged, with a steady pipeline of enquiry and deals filtering through. By comparison however, enquiry for office space over 400sqm has been extremely scarce, with State and Commonwealth Government tenants the only real exception.
Interestingly, we have continued to track steady enquiry throughout the COVID-19 period, where enquiry for this period in 2020 matches the same enquiry levels we had during both 2018 and 2019 respectively. We do note however, that a large amount of this enquiry has been for short-term, sub-250sqm tenancies with existing fitouts. Of those enquiries, only 25% resulted in property inspections and only 5% resulted in concluded lease transactions.
Despite the overall vacancy rate rising only slightly, space available in Adelaide’s newest buildings built post-2006 is less than 2%. This isn’t surprising given the leasing activity in the past 18 months and the flight to quality experienced.
While many of the Eastern Seaboard markets have seen a spike in the level of sublease space available, Adelaide is yet to see any real sublease market of note to emerge. This was also evident during the GFC, when Adelaide had the same level of immunity when it came to large corporates handing back space. Given large corporates don’t occupy huge spaces in the Adelaide market, any reduction in staff numbers is likely to see vacant desks absorbed rather than put to the open market as sublease space. Additionally, limited new supply entering the market for the immediate future will support positive rent and incentive fundamentals, with 108 Wakefield Street the only new stock to enter the market over the next three years.
Face rentals in the market have held steady during the COVID-19 crisis, while incentives over the past three – four months have only increased marginally, up to 32% on average.
All this being said, landlords will need to keep an eye on 2023/24. With the recently announced CBUS development at 83 Pirie Street, there will be a significant amount of new and backfill space available in 2023 that will have an effect. This will be further amplified if the 30,000 sqm Commonwealth Government requirement in the market for Department of Human Services gets the green light. Landlords will need to structure expiries to avoid any vacancy during this period and work even harder now on securing tenants for current vacant space.
We remain steadfast in providing timely insights and expertise during this unprecedented time.