First half of 2018 sees $219 million invested into Adelaide office market

30 July 2018

The first half of 2018 saw $219 million invested into the Adelaide CBD office market, bringing the 12-month rolling year to June to $583 million, according to Savills Australia’s latest Quarter Time National Office research report.

Associate Director for Research & Consultancy, Katy Dean, said the consistently high level of assets transacting throughout the past four to five years reflected investor appetite and the long-term view of Adelaide’s capital growth potential.

“On a 10-year basis, investment volumes are sitting around $386 million annually but this really has been led by trends in the first half of that decade, with the past five years averaging more than $500 million annually,” she said.

“When we look at the price point of the assets trading, we are now seeing more activity in that $100 million-plus segment than we have historically seen in Adelaide.”

Ms Dean said that more than $1.1 billion in assets greater than $100 million had traded since 2013, compared to circa $300 million between 2003 and 2012.

“The quality of assets in Adelaide has risen significantly and although there have been some headwinds in the leasing market throughout the past few years, the level of capital that has and is being injected into the market through development is indicative that there is more confidence on the ground than is actually being reported,” she said.

Savills Australia’s Peter Isaksson, director for Capital Transactions in Adelaide, said investor confidence in Adelaide had been very high throughout the past few years, and there were no signs of this abating.

“The largest deal in the first quarter was Centuria and Lederer Group’s acquisition of 80 Grenfell Street from Blackstone for $184.6 million,” he said.

Mr Isaksson said Adelaide yields were still relatively high in comparison to the eastern seaboard, offering greater value for domestic and offshore investors when compared to some of the major markets in the Asia Pacific region.

“We’ve had prime-quality assets trading in Adelaide on market yields of 6.25 percent and 6.50 percent, as in the case of 80 Grenfell Street and 11 Waymouth Street recently, however the average benchmark is still well above what is being achieved on similar assets in Sydney or Melbourne,” he said.

“The South Australian economy is in healthier shape, the job outlook is very good and the general sentiment has improved markedly on the back of stamp duty cuts and the federal government’s multi-billion-dollar defence partnership announcements.”

Mr Isaksson went on to say that the prospect for potential deals in the coming 12 months was “very strong” but competition for assets was increasing and the weight of capital entering Adelaide’s office market was likely to put some downward pressure on yields.

“Adelaide has not experienced the same level of compression as the eastern states’ markets, and the wide yield spread that exists between the markets does suggest that there is scope for further compression to occur, especially if we continue to see the same level of big-ticket transactions that have occurred recently,” he said.

 
 

Key Contacts

Peter Isaksson

Peter Isaksson

Director
Capital Transactions

Savills Adelaide

+61 (0) 8 8237 5020