Two tier economy at work in Adelaide - Colliers International report

By Richard Evans

A HEALTHY 2015 is in store for Adelaide’s metropolitan office markets but the city’s traditional two tiered geographical slant remains as solid as ever, says a half year report out this week.

Commercial agent Colliers International’s metro office research and forecast report claims the city’s metropolitan office market has been characterised by declining vacancy rates, solid investment activity, limited supply and improvements in demand in the first quarter of this year.

The Dial for Demand report says the vacancy rate in the Adelaide fringe fell in the second half of 2014 to 8.3 per cent, down from 9.9 per cent six months prior. This was largely a result of stock being withdrawn and more positive net absorption in the last half of last year, it says.

The Adelaide suburban vacancy rate also fell, to 6.4 per cent compared to 6.9 per cent in July 2014.

Kate Gray, Colliers’ associate director of research, said Adelaide’s metropolitan office market remained rigid.

“The inner metro markets, which include the fringe and areas within proximity to the CBD, have remained solid for both the investment and leasing markets,” she said, “but outer metro markets are still experiencing limited demand."

A growth forecast of 1.5 per cent in white collar employment will aid demand, she said.

“Limited new supply and improvement in white collar employment growth is likely to lead to positive net absorption and falling vacancy in the fringe and metro markets over the next 12 months."

17-19 Fullarton Road Kent Town pic courtesy of The Advertiser
17-19 Fullarton Road, Kent Town, Adelaide. Source: SA Business Journal, The Advertiser

Adelaide’s metropolitan investment market below $5 million had seen reasonably solid activity, particularly in the fringe market, said Oliver Totani, Colliers metro markets manager.

Zoning changes to allow mixed use development and higher building heights have led to several sales along Greenhill Road selling with vacant possession, he said.

A total of $16.35 million of major assets exchanged during 2014 in the metropolitan markets, he said, below the 2013 total of $20.38 million.

Ms Gray confirmed the lack of larger stock on the market with the bulk of sales nearer the $2 million price bracket.

A record year of investment in the Adelaide CBD office market in 2014 was not reflected in the Adelaide metro markets, Mr Totani said.

“This increase in investment in Adelaide CBD was a result of increased activity of institutional investors, but there have been limited opportunities for these investors in the Adelaide metro markets.

“Yields have seen limited change over the last 12 months, but the fringe and inner suburban markets tend to attract tighter yields when compared to the CBD. This is due to the smaller size of the investments on offer in this market."

Interest rates meanwhile are playing their part.

“A lot of active buyers and investors are high net worth privates, so interest rates are a big factor,” he said.

The largest sale in the metropolitan market in 2014 was 17-19 Fullarton Road, Kent Town, which sold for $11.1 million in November to Australian Unity Healthcare Property Trust for an initial yield of 8.5 per cent.

This article was re-published with permission of the author. Source: SA Business Journal, The Advertiser (24/3/15)

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