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New office buildings drive city vacancy rate up

Business

The Property Council is citing the biggest spike in city office space supply since 2013 as the reason behind an increase in Adelaide’s CBD vacancy rate. And it has foreshadowed further vacancy increases this year as 27,000sq m of new office space becomes available.

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The Property Council of Australia’s latest Office Market Report shows a 10 per cent increase in the CBD vacancy rate from 12.8 to 14.0 per cent while fringe vacancy has risen from 13.1 to 14.7 per cent in the six months to January 2020.

The small “Premium” category, which includes several floors of Westpac House recently relinquished by the State Government, had the biggest vacancy increase from just 2.6 per cent to 15.3 per cent. The vacancy rate in the next highest category of “A Grade” offices increased from 12.3 per cent to 13.8 per cent space.

Property Council SA Executive Director Daniel Gannon said 29,500sq m of supply additions in the A Grade segment, including Charter Hall’s GPO Exchange redevelopment and Uniting Communities’ 20-storey U-City building in Franklin St, had driven the vacancy rate higher.

He said today’s report featured the largest amount of A-Grade supply coming online in Adelaide in the past seven years, confirming a heightened level of confidence in Adelaide.

“Almost 27,000 sqm of additional space is due to come online this year in the CBD, followed by more than 50,000 sqm from 2022 onwards,” Gannon said.

“Over the next three years, Adelaide’s CBD profile will rise significantly with iconic buildings reshaping the city’s commercial heart.

“This is good news for investors, building owners, tenants and consumers alike, with ground floor retail spaces injecting more life and energy into the city and upper levels providing modern environments for workers.”

Gannon said the flood of supply may lead to further vacancy rate increases in the short term but could also lead to some of the older stock being removed from the market.

“We are seeing more investment trickle in from interstate and abroad, we’re seeing transactions pick up and we’re seeing a greater uplift in redevelopment of ageing stock,” he said.

“But one of the medium-term challenges for the Adelaide market is working out what to do with the 63 per cent of our building stock that is greater than 30 years old.”

The net supply of office space across all categories increased by 20,000sq m for the six months compared with a historical average of about 8000sq m.

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