Is Adelaide a commercial ‘safe haven’?

In an Adelaide market update from Colliers International national director Alistair Mackie, associate director of investment services Tom Isaksson, director Trevor Boddy and associate director Jordan Schmidt, the experts acknowledged that a large proportion of organisations now plan to make remote working “a more permanent fixture in their post-COVID workplace”.

Despite this, South Australia’s capital is “well and truly living in a COVID-free bubble and long may it last”.

According to the directors, there’s been a steady increase in activity across Adelaide’s CBD over the past few months, even with some downward market sentiment creeping into the local office sector as a result of Victoria’s second wave of lockdown.

While activity in the leasing market was subdued in the second quarter of 2020, the experts highlighted that they “have recently seen a significant improvement in enquiry levels, which points to a more positive outlook for the second half of the year”.

Being away from Sydney and Melbourne hubs has also benefited the local market, with the directors noting large corporates who have been sub-leasing significant portions of their CBD presence in the more eastern cities are not doing so in Adelaide.

Vacancy levels are expected to rise to around 15 per cent – a “relatively minor impact under the circumstances” – where the current vacancy rate sits at 14.2 per cent.

With landlords now competing for a limited number of active businesses to take over premises, the directors did concede that “owners should not expect any face rental growth over the short to medium term”.

They flagged that while upcoming lease expiries have traditionally been the catalyst for movement among tenants, the opaque outlook on the short to medium-term market recovery means many businesses “are seeking short-term hold-over arrangements with their existing landlords while they wait for the dust to settle”.

Despite this, investment activity is still continuing to build momentum and there are still developments in the pipeline, it’s been reported, with interest from both interstate and offshore groups “reflective of South Australia’s health and economic response to the outbreak, firming our state as a safe haven for residents and investors alike”.

“Significant volatility in equities and lower returns in the fixed-interest markets has investors leaning to the commercial property sector for higher-yielding assets. With interest rates expected to remain at record lows for some time, we expect that this trend will continue for the foreseeable future,” the directors concluded.