Net absorption in Adelaide's CBD office market has reached its highest level in 15 years, driven by limited new supply additions and rising demand for office space, according to new research from Knight Frank.
According to Knight Frank's Adelaide CBD Office Market – September 2024 report, net absorption surged in the first half of 2024, increasing from 673 sq m in January to a near-record high of 29,041 sq m in July, and 10 significantly exceeded the previous year. -Average 3,955 square meters per year.
This is the largest six-month absorption in 15 years since January 2009.
Martin Potter, Head of Leasing SA, Knight Frank Partners, said net absorption had increased for 18 months, indicating demand was increasing amid limited new supply additions. He said there was.
“Both the state and federal governments have secured additional space across several government agencies as people move from suburban and surrounding areas to the CBD,” he said.
“We continue to see positive levels of inquiries as occupiers look to take advantage of the competitive incentives available in the market to upgrade their office accommodation.
“In recent years, there has been a continued trend towards a ‘flight to quality’, but in recent years the image of tenant ‘experience’ has evolved as the needs and desires of Adelaide tenants have gone beyond mere aesthetic appeal to become more ESG-focused. It shows that there is.
“Tenants are creating higher quality office spaces with higher levels of amenities and more environmentally sustainable practices at their disposal, with a clear focus on the overall tenant experience and encouraging staff to return to the office. is moving to.
“As a result, new generation inventories completed since 2006 continue to attract the greatest demand.”
The Knight Frank report found that this demand disparity resulted in a 26.09 percent vacancy spread between new generation (11.08 percent) and old generation (37.17 percent) inventory.
Meanwhile, the overall vacancy rate in the Adelaide CBD office market declined from 19.3% in January 2024 to 17.5% in July 2024 due to high net absorption.
Dr Tony McGough, Partner, Research & Consulting at Knight Frank, said the supply of new developments in the Adelaide CBD office market will be close to zero in the first half of 2024, with no new development additions recorded over the same period. said.
“This is in stark contrast to the past 18 months, where more than 30,000 square meters of market were added every six months,” he said.
“However, refurbished supply is being added to the market, with over 44,000 square meters expected to be delivered in the second half of 2024.”
Incentive levels remain unchanged in the six months to July 2024 due to higher absorption, lower new supply levels and continued strong demand from market participants, according to Knight Frank research. .
“For the foreseeable future, we expect there to be upward pressure on incentives for secondary assets, while incentives for prime assets should remain stable,” Dr McGaw said.
“Despite the strong performance over the past 12 months, rental growth slowed in the first half of 2024, with prime gross rents rising just 1% and secondary stock averaging 0.6%.”
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