Owner Occupiers Drive Surge in Adelaide’s Commercial Property Market

Colliers experts say an increasing number of businesses opt for equity building in current economic environment.

Colliers South Australia has identified a significant trend throughout 2024, with a growing number of owner-occupiers seeking commercial spaces across metropolitan Adelaide, particularly within the CBD. This shift has been driven by various factors, including the rising cost of debt and the strategic advantages of property ownership.

Jack Dascombe, Executive, South Australia | Investment Services, said, “Despite the higher cost of debt, many businesses find that building equity in an asset they own is more financially advantageous than paying market rent, which has led to a noticeable uptick in businesses looking to establish themselves in their own premises.”

Since the Reserve Bank of Australia (RBA) began raising the cash rate in May 2022, investors have been drawn to higher-yielding leased investments to mitigate the impact of higher debt costs. In contrast, owner occupiers, who prioritise the characteristics and positioning of properties over financial returns, have become a rapidly growing market segment.

“An example of this trend is the recent sale of 17 The Parade, Norwood. The property presented an opportunity for owner occupiers and investors to secure a charming character office along Norwood’s tightly held Parade retail precinct. Our price guide for enquiring groups was $1,700,000 based on comparable market data. After a competitive campaign with five offers all from owner-occupiers, the asset ultimately sold for $2,037,500,” added Mr Dascombe.

Mr Dascombe also touched on a driving force particular to South Australia’s market. “In addition, the South Australian Government’s compulsory acquisition of properties along South Road has also contributed to this trend. Businesses displaced by these acquisitions have been seeking new locations across metropolitan Adelaide, often within tight timeframes, driving up demand for vacant possession opportunities.”

Rhys Newman, Associate Director, South Australia | Investment Services, commented, “The current interest rate environment presents a unique opportunity for vendors to divest at record levels, generating healthy returns from cash deposits. Properties offering immediate occupancy or short lease tails are particularly desirable to owner-occupiers.”

The growing trend is further reflected in the sales data. While the number of sub-$10 million leased investments sold across Adelaide has increased by 10% since 2021, vacant possession sales volumes have surged by 51%.

Excluding sales of unimproved land, in the 12 months to October 2024 64% of Colliers’ SA transactions by volume provided the opportunity for vacant possession at settlement. This is compared to 53.5% in the previous 12 months. Thus far throughout 2024, there have been 27% more vacant possession sales than in the entire year of 2021.

Mr Newman also added, “The increased activity from owner occupiers has created a competitive market for vacant possession properties, especially those with quality improvements in prime Adelaide locations. The enquiries from owner-occupiers have only grown and we anticipate this trend to carry on into next year.”