End of manufacturing heralds new era for South Australia economy
End of manufacturing heralds new era for South Australia economy
15 May 2016
Adelaide, 16 May 2016 –Holden’s imminent departure from Adelaide in 2017 is not the ‘edge of the cliff’ for South Australia’s economy, according to CBRE’s latest economic forecasts.
Speaking at the firm’s annual Adelaide Market Outlook event, CBRE Head of Research, Australia, Stephen McNabb said manufacturing had been declining across Australia for three decades.
“Every time we talk about South Australia, we hear about manufacturing and car manufacturing – and their demise being the end of the world,” Mr McNabb explained.
“Over the past 15 years, the manufacturing sector has shrunk by over 18% in South Australia, but the decline in car manufacturing has been in decline since about 2003 as well.”
In 2003, about 400,000 cars per annum were manufactured in Australia – last year, 167,000 cars were made
“The worst of the decline in car manufacturing has already hit the Australian market. The important story for South Australia is that the economy is continuing to grow. It is now about 40% bigger than it was in 2000, and transport and storage is 40% bigger than what it was, which highlights it as being the key driver of the industrial market in South Australia,” Mr McNabb added.
CBRE Asia Pacific Head of Research, Henry Chin, said key Australian markets including Adelaide would continue to benefit from strong inflows of offshore capital.
Citing findings from CBRE’s new Investor Intentions Survey, Mr Chin said Australia had jumped from second to first position in Asia Pacific as the market most favoured as a cross border investment destination.
“Traditionally, Asian investors only want to buy A-grade buildings in major gateway cities such as London, Sydney and Melbourne, but over the past 12 months, we have noticed that they are shifting their focus to non-gateway cities,” Mr Chin explained.
In 2015, outbound investment from Asian institutional investors totalled US$63 billion – with the majority of this flowing to the US, followed by Western Europe.
Pacific attracted US$8.1 billion in Asian capital, with the majority of this injected into Australian markets and reflecting 45% year on year growth.
Mr Chin said while China accounted for a large portion of Asian investment into Australia, it was only part of the story.
“It’s not all about China. The most active outbound Asian investor is actually Singapore and they want to continue deporting their capital into Australian markets,” Mr Chin explained.
“Meanwhile, Korea is the most aggressive investor, ramping up their capital in offshore markets significantly over the past year.”
The Market Outlook research presentation was followed by a panel discussion, keypoints from which are summarised below.
Andrew Bahr – Director, Advisory and Transaction Services
Mr Bahr said Adelaide’s office market was positioned for significant growth, with the health and IT sectors set to drive demand for space in and around the north-west end of the city over the coming years.
“With the new Royal Adelaide Hospital, SAHMRI and the university research buildings, Adelaide is going to have the biggest biomedical precinct in the southern hemisphere. This is going to underpin strong activity at that end of North Terrace, and moving forward, the rest of the CBD as well,” Mr Bahr explained.
“We’re not seeing it quite yet, but once the new hospital moves across at the end of the year, there will be a number of occupiers looking to gain a presence in the precinct – that will only continue, with strong demand particularly from those in the service based industries.”
Mr Bahr went on to say the ‘sweet spot’ for tenancy demand in Adelaide’s office market would be the sub-300sqm market, which would continue to see strong demand amid a lack of sufficient stock, particularly in the better quality buildings.
“Over the past 12-18 months, 70% of our tenant enquiry has been for smaller, premium offices in that sub-300sqm bracket,” Mr Bahr said.
“These tenants are prepared to pay top prices for quality space, which presents significant opportunity for building owners willing to meet this demand.”
David Reid, Senior Director, Industrial & Logistics
Amid the demise of car manufacturing in South Australia, the state’s industrial and logistics market was undergoing a shift, Mr Reid said.
“Manufacturing only represents 8% of South Australia’s total economy, so this isn’t the end of the world for the state’s industrial market – we’re in a state of transition as opposed to a downturn.”
“Where we are seeing growth stem from is that transport and logistics space, with growing enquiry for assets in that 5,000sqm – 20,000sqm range.”
Food and beverage was emerging as another key growth driver in South Australia’s industrial market.
“South Australia is increasingly positioning itself as a premium exporter in the food and beverage industry – this is creating demand for space from everything such as processed food products and wine storage through to associated inputs of bottled glass, food packaging and bulk fertiliser,” Mr Reid said.
“The new food park proposed at Parafield Airportwill further support growth, through integrated production efficiencies and linkages, as well as government support.”
Ben Heritage – Associate Director, Capital Markets & Metropolitan Investment Properties
Mr Heritage said Adelaide was benefitting from unprecedented levels of offshore investment on the eastern seaboard.
“What we’re seeing is a flow on effect from the record volumes of foreign buyers entering the Melbourne and Sydney markets, with local and domestic investors turning their attention to Adelaide as they’re priced out of their own markets,” Mr Heritage said.
“There is also activity from private overseas investors in Adelaide, however, this is mainly restricted to CBD development sites.”
Mr Heritage said over the past 12-18 months, there had been significant interest from developers looking for older industrial properties with potential for regeneration towards residential.
“The demand we’re seeing is focused on Churchill Road in the inner-north, Mile End in the inner west and inner south suburbs such as Everard Park and Keswick, as well as Kent Town on the eastern side of the city.”
Low population growth forecasts are expected to hamper Adelaide’s residential market in the short term, with a potential oversupply situation amid a flurry of development in the inner-city areas.
Ms Bartolo said despite the risk of an oversupply in the short term, there would be continued demand for residential near employment centres and transport options.
“As the Adelaide economy transitions, we will experience some short to medium term imbalances, however there is opportunity close to growth centres in the long term,” Ms Bartolo explained.
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