Adelaide’s office market heats up

05 November 2018

Sales volumes for Adelaide’s CBD markets were the second highest on record in the 12 months to September 2018, with approximately $735 million of office transactions (greater than $5 million) recorded, according to Savills Australia’s latest Adelaide Office Briefing.

The report reveals a notable spike in investor interest in Adelaide’s commercial property markets, with state final demand growing by 1.3 percent in the June quarter, corresponding to an annual growth rate of 3.95 percent (on a rolling year basis), which was well above all long-term averages.

“There is definitely reason to believe that a pick-up in economic activity and a generally supportive business environment, in conjunction with yields considerably lower than other office markets nationally, are drawing both domestic and foreign investors to the market,” Savills associate director for Capital Strategy and Research, Shrabastee Mallik, said.

“Business confidence in South Australia was the highest in Australia of all states nationally in September 2018 at 131.6 points (up 10.1 points from the year prior), according to the Roy Morgan Business Confidence index.

“This clearly illustrates to us that Adelaide’s office markets are going to continue to grow in terms of attractiveness throughout the next two to three years.”

Labour market statistics released last week from the ABS and DOE show these indicators are also strong, with total employment growth in the year to September 2018 recorded at 1.3 percent, surpassing all long-term Compound Annual Growth Rates (CAGRs).

“Professional job advertisements grew by 14.0 percent in the same annual period, pointing to ongoing strength in Adelaide’s office markets,” Ms Mallik said.

“We are also going to see significant positive flow-on effects to the South Australian economy, with ongoing federal government spending on the new ship-building program expected to create thousands of direct and indirect jobs.”

Peter Isaksson, an Adelaide-based Capital Transactions director for Savills, said that investors were increasingly recognising the potential Adelaide office assets had to offer, particularly in comparison to assets in other office markets.

“South Australia is now the only state in Australia that has no stamp duty on commercial property transactions, further increasing its attractiveness to investors, particularly foreign investors,” he said.

“We are seeing more and more evidence from sales campaigns of a notable increase in enquiries from foreign investors, as they look for yield outside of the east coast office markets.

“Savvy Singaporean investors have been particularly active, as they look to diversify beyond the east coast.”

Mr Isaksson went on to say that he was already seeing “significant interest” in the sale of a 50 percent stake in Adelaide’s Westpac House from institutional and private investors, as well as Singaporean groups.

“This will likely drive the yield achieved on the building below market expectations of 7.0 percent,” he said.

National Head of Asset Management and State Managing Director for South Australia, Rino Carpinelli, said Savills was noticing more investors looking to “increase geographical diversification in their portfolios” and, to some extent, move out of markets to where opportunities were “heating up”.

He said that the consistently high level of assets transacting throughout the past four to five years was a reflection of investor appetite and a long-term view of Adelaide’s capital growth potential.

“There is an increasing number of new investors to Australia for numerous reasons, including its transparency, however more of this capital is chasing quality product, which in reality is becoming more expensive,” Mr Carpinelli said.

“Adelaide has not experienced the same level of compression as the eastern-state 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.

“The recent story of capital investment flows into Adelaide supports the improvements we are seeing in occupational demand and the state economy, which are important drivers for sustaining investor interest and potentially for a new development cycle.”

 
 

Key Contacts

Rino Carpinelli

Rino Carpinelli

National Head - Asset Management and Managing Director - SA

Savills Adelaide

+61 (0) 8 8237 5000

 

Peter Isaksson

Peter Isaksson

Director
Capital Transactions

Savills Adelaide

+61 (0) 8 8237 5020