Colliers transacts office building with significant value add upside in Adelaide CBD location for $13 million

Colliers’ Alistair Mackie, Rhys Newman and Paul van Reesema have transacted a quality office building with significant value add upside in a prime Adelaide CBD location for $13 million and a passing yield of 6.43%.

Brought to the market for the first time since construction, the 3,432 sqm three-storey office building with 56 basement car parks generated strong interest from a local and national perspective with a mixture of funds, syndicates and private high-net-worth investors.

Colliers’ National Director, Alistair Mackie, said, “It was a highly competitive campaign with over 85 enquiries, 12 inspections and six offers, clearly indicating a strong appetite for opportunities in the sub $20 million sector, with value-add potential.”

“As the flight to quality continues for office space in Adelaide’s CBD, vacancy rates keep tightening for high-quality A-grade offices, with 78% of the deals being attributed to businesses expanding or upgrading. A trend that is expected to continue during the second half of 2023.”

“Savvy investors seek opportunities to reposition older generation office buildings that appeal to the broader market while offering the genuine potential to create added value for hands-on and sophisticated investors.”

Rhys Newman, Colliers’ Manager of Investment Services, explained, “General investor sentiment at an institutional level has dampened due to rising cost of debt and elevated inflation, despite improved leasing activity. However, a significant amount of investment capital in the market is looking to be placed.”

The strong recovery of Adelaide’s office market at the back of the pandemic has seen the market pivot towards assets with a narrative to create value, as opposed to pure passive investment.

“We have recently seen more private high net worth investors competing more aggressively in the current market and benefitting from the strong economic fundamentals, underpinning the demand for commercial office in the resilient South Australian market,” said Mr. Newman.

Currently, 79% occupied, 99 Frome Street has a longstanding tenant profile supported by high-profile corporate tenants, including O’Loughlin’s Lawyers and ElectraNet. The current vacancy on the ground floor creates an opportunity to realise genuine value through vacancy letup and reversionary upside.

“Once fully occupied, the asset is estimated to generate an annual income stream of $1,152,127,” added Mr. Newman. “The property will enjoy the increased activity and demand through the eastern precinct and is well located to capitalise on the overflow of tenant requirements.”

Strategically positioned in a part of Adelaide set for further transformation, 99 Frome Street benefits from the $672 million Lot Fourteen project on North Terrace, one of the most exciting urban renewal projects in Australia, with a key focus on leading ability in space, defence, hi-tech and entrepreneurship.