Adelaide’s CBD office market footprint is on track to expand by 6.9% in 2023, but it still may not be enough to cater for future leasing requirements.
JLL’s Head of Office Leasing – SA, Tom Budarick said the current construction phase was adding much-needed quality office space to the CBD market but more modern floorspace would be required.
JLL Research figures for 4Q 2022 recorded the vacancy rate in the Adelaide CBD at 16.5%, with vacancy of Prime-grade office buildings at 17.0% and Secondary at 16.2%.
Mr Budarick said a further breakdown of vacant space revealed the new wave of Prime buildings with a 5.5 NABERS rating in the CBD had a vacancy of just 9%, compared to all prime buildings at 17%.
While the current vacancy rate for strongly rated NABERS buildings seems high, this is mainly due to backfill vacancy entering the market as a result of new supply, and a proportion of this space is being marketing but isn’t able to be occupied until late 2023 or early 2024. We expect that it will be quickly reabsorbed. Occupiers remain focussed on modern space that meets current ESG and Net Zero specifications,” Mr Budarick said.
He said the looming shortage of modern space could lead to new buildings for SA Government tenants with SA Health recently coming to market seeking up to 25,000 square metres of 5.5 Star NABERS Energy, 4 Star NABERS Water rated space.
He said major tenants are looking for modern office buildings offering a NABERS rating of at least 5 Stars as well as the latest technology and communications, quality fitting and fixtures and a focus on tenant amenities such as flexible spaces, retailing, cafes, childcare, gyms and end-of-trip facilities.
Mr Budarick said demand for newly constructed office towers had seen Prime gross face rents increase by 4.7% to $566 per sqm p.a. in 2022 while average gross face rents in secondary stock increased 1.2% to $374 sqm over the same period.
“Leasing activity is strong among the larger tenants who are taking advantage of the market to upgrade their offices,” he said.
JLL Research recorded the following deals in Q4 2022:
- Deloitte announced its 7000 sqm commitment to Walker Corporation’s Festival Plaza Tower.
- NAB has pre-committed to 3,100 sqm at Charter Hall’s 60 King William Street
Strong demand for space in the new Prime NABERS 5.5 rated buildings is demonstrated by the following deals.
- Charter Hall has leased 95% of 52-62 King William Street, comprising 40,000 sqm of office space and is anchored by Services Australia (28,500 sqm),Telstra (4,500 sqm), and NAB (3,100 sqm).
- Walker Corporation’s Festival Plaza Office Tower is under construction and underpinned by a 12,000 sqm pre-commitment from Flinders University and the 7,000 sqm pre-commitment from Deloitte.
- In the BioMed City precinct, the Government of South Australia-owned SAHMRl2 is under construction with around 8,775 sqm pre-committed by public sector departments.
Mr Budarick said he expected activity levels in the Prime office market to continue in 2023 with a number of major requirements in the market.