Colliers International leases four levels in Adelaide CBD high-rise to state government, forecasting positive leasing environment for South Australia in 2017
South Australia’s state government has committed to 7,100sqm of office space in the Adelaide CBD, marking the largest sub-leasing transaction of 2017 to date.
Colliers International’s Adelaide Office Leasing team, lead by James Young, facilitated the deal at 50 Flinders Street on behalf of sub-lessor Santos Ltd.
This deal forecasts a positive leasing environment for South Australia in 2017, with activity expected to increase due to lease expiries and organisational restructuring. Combined with stock withdrawals and tightening development supply, positive net absorption and a reduction in vacancy rates are anticipated.
As outlined in the latest CBD Office RFR, Adelaide’s CBD office vacancy is likely to have peaked as the construction cycle comes to an end this year, with limited new supply in the pipeline in the short- to medium-term.
The vacancy rate is expected to tighten from 16.2 per cent in the first half of 2017 to 15.9 per cent by June, and likely to contract further in the six months following as the incoming supply starts to slow.
An increase in enquiry levels in the latter part of 2017 is also expected to continue, generating greater absorption in the coming months. Demand is starting to show signs of improvement, with small to medium enterprises growing, and sectors such as education and health, in particular, are expected to drive demand in the coming 12 months.
Mr Young said more companies were harbouring the view to improve productivity and reposition their brands, fuelling the movement among tenancies in the CBD.
“The market is expected to continue a flight-to-quality dynamic, as tenants trade up into better quality premises,” he said.
“Well-located A- and B-grade buildings will continue to perform well on the basis that landlords are actively engaged in the leasing process.”
Sales activity remains strong, as investors see the value in the Adelaide market, contributing to a volume of more than $453 million for 2016. Scarcity of stock and strong competition for assets on the eastern seaboard have seen investors looking at other markets that offer value, with Adelaide being one of those markets.
Greater activity is anticipated in the hotel sector in 2017 and 2018, with new projects consuming existing CBD sites that have had prior development approvals for office use. This will have an impact on the psyche of relevant sector participants, as the potential for future office supply dwindles in favour of alternative uses.