The latest Property Council Office Market Report, released this morning, shows the vacancy rate in Adelaide’s CBD has reached 16.2 per cent.
The vacancy rate was already at its highest level since 1999 (15.8 per cent) in August last year and has since continued to climb.
Property Council SA Executive Director Daniel Gannon told InDaily weakening demand and increasing supply had caused the vacancy rate to jump once again.
He said convincing large companies to bring their headquarters to Adelaide was key to stemming declining demand.
“The big challenge… for us it how we start targeting more demand,” said Gannon, adding that South Australia’s “anti-competitive” land tax rate of 3.7 per cent was discouraging larger players from basing themselves in Adelaide’s CBD.
He said a cultural shift was also necessary: “We lead the country in talking ourselves down.”
Adelaide’s CBD vacancy rates began to climb in the aftermath of the Global Financial Crisis from a low of less than five per cent in 2009.
In the six months to January 18,771 square metres of office floor space were added to Adelaide’s CBD, mostly in “B-grade” buildings.
The vacancy rate is highest in buildings of the poorest-quality – “D-grade” – where 20.2 per cent lay empty, and lowest in “premium grade” buildings, where just 8.3 per cent failed to attract a tenant.
Gannon said converting low-quality buildings into higher-quality commercial space or residential apartments would help reduce the vacancy rate.
He said almost half of the buildings in Adelaide’s CBD were built in the 1980s or earlier.
Early last year, the State Government announced it would shift about 500 public servants to a new building in Port Adelaide, although not all of those bureaucrats would be drawn from the CBD.
“If government agencies were to shift out of the CBD… naturally, that would be a challenge,” Gannon said at the time.
A Walker Corporation building to be erected on a redeveloped Festival Plaza will add about 40,000 square metres of office space to the Adelaide CBD market.
But Gannon said increasing supply in the higher end of the market was a good thing, whereas increasing supply at the lower end of the market contributed to the vacancy problem.
The August 2016 office vacancy rate – 15.8 per cent – was revised down to 15.4 in the latest market report.
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