APPD Market Report Article


May 26, 2024

Andrew Ballantyne, Head of Research, Australia


AUD 320


Quarterly net absorption in positive territory

  • Quarterly net absorption was positive at 11,000 sqm in Q1 2024; a significant increase from the previous quarter which was negative at -351 sqm. Expansionary and centralisation activity by public and administration services were key drivers of this result.
  • Headline vacancy decreased to 17.0% and the prime vacancy rate also decreased to 17.4% after an increase last quarter. Vacancy levels are still being impacted by the backfill space created by Adelaide’s largest ever supply wave currently underway that has been recorded over the last 18 months.

One completion in the quarter

  • A seven-level office building at 185 Pirie Street reached practical completion in Q1 2024. The office building comprises 6,225 sqm of office space with ground level retail and is owned by Palumbo Building. Defence Housing Australia pre-committed to the top two floors, totalling 1,400 sqm to underpin the development.
  • There is 31,000 sqm in the supply pipeline currently under construction with the largest asset being a 21,000 sqm office tower development by Kyren Group. The 21-level office building has a retail component on the ground floor and is speculatively under construction. With the large supply wave underway, this places further upward pressure on vacancy in the near-term.

Yields stable in the quarter

  • Average prime net face rents increased in Q1 2024 by 2.6% to AUD 481 per sqm per annum and average prime incentives decreased marginally. This resulted in average prime net effective rents increasing by 4.3% to AUD 192 per sqm per annum.
  • The yield decompression cycle that commenced mid-2022 stabilised in Q1 2024, with average prime midpoint yields at 7.25% over the quarter. Over the last 12 months, average prime midpoint yields have decompressed by 113 bps.

Outlook: Occupier demand to fluctuate in the short term

  • Occupier demand is expected to be driven by opportunistic upgrading of office accommodation, coupled with ongoing centralisation activity over the short term. As a result, it is expected that vacancy will remain elevated over the medium term as supply-driven backfill space gets reabsorbed incrementally.
  • The yield decompression trend is expected to continue and is forecast to reach a midpoint of 7.63% by the end of 2024, which will end the decompression cycle. As broader economic conditions stabilise, investor confidence and assets brought to market are expected to return.

Note: Adelaide Office refers to Adelaide's CBD office market (all grades).

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