Bullish property market in Adelaide shows no signs of slowing
There is no slowdown on the horizon for Adelaide’s bullish commercial property market amid the strongest selling conditions since the 2009 financial crisis.
Once seen as a laggard to busier cities on the east coast, the South Australian market is playing catch up as an investment destination, buoyed by the state’s economic resilience throughout the pandemic.
A spree of sizeable transactions in the city has brought forward three to five years of growth in the commercial property market, according to Knight Frank.
“It’s an extremely strong and aggressive market, with large amounts of capital needing to be placed,” said Oliver Totani, the agency’s head of investment sales in South Australia.
The real estate agency negotiated more than $205 million in sales in the first quarter of the 2021-22 financial year, almost double the $104 million in sales in the previous quarter.
Major transactions include last month’s $92.75 million sale of the Tennyson Centre, a cancer centre in Kurralta Park. The off-market deal was brokered by Knight Frank’s Jack Dyson and Guy Bennett.
Meanwhile, an industrial site leased to Coates was snapped up at auction for $16.1 million, thought to be the highest price paid for a single asset at auction in Adelaide.
Mr Totani said a further $100 million in property was currently on the market, as well as multiple off-market transactions in play.
“The city is now truly on the radar for domestic and overseas investors,” Mr Totani said. “The value on offer in Adelaide is also a drawcard, with the yield spread between our city and the cities on the eastern seaboard sitting at 0.75 per cent to 1.5 per cent, depending on the asset type.”
Significant deals in the office market have transacted in recent months, including 25 Nile Street, scooped up by Centuria for a cool $62.75 million. The A-grade office building in Port Adelaide was jointly brokered by Knight Frank and Cushman & Wakefield.
In a deal brokered by Colliers in September, fund manager Quintessential Equity paid $71.5 million for a CBD office tower. The group plans to refurbish the building at 100 King William Street.
Colliers director of research in South Australia, Kate Gray, said unprecedented levels of institutional and private investment were looking to enter the Adelaide market.
“They understand the growth path Adelaide is on,” Ms Gray said. “The transaction level is being held back by a lack of available stock rather than a lack of demand, which is significant.”
The state has emerged from the pandemic in an advantageous position. The unemployment rate is at its lowest level since 2010, while Adelaide has recorded four consecutive quarters of population growth. And the city was named Australia’s most liveable city by the Economist Intelligence Unit this year.
According to real estate firm JLL, the decision to ditch stamp duty on commercial transactions in 2020 had been significant, particularly for purchases under $20 million.
“The perception of Adelaide as a second-tier investment destination after Sydney, Melbourne, Brisbane and Perth is changing,” said Rick Warner, JLL’s South Australia research director. “Adelaide is becoming part of that investment landscape.”
The city has positioned itself as a leading defence, bio-med and manufacturing investment hub.
A new wave of demand for industrial and logistics real estate is being driven by businesses expanding operations into Adelaide from Melbourne, or choosing Adelaide as their primary base.
“It shows a confidence here we’ve never seen before,” said Ben Parkinson, managing director of JLL’s South Australia office.
The amount of warehouse space leased in Adelaide this year totalled 243,000 square metres, the second-highest annual gross take-up on record, according to JLL.
Colliers’ national director industrial, Paul Tierney, said there had been a sharp increase in demand for industrial land. “We have just launched NXL in Edinburgh – a 16 lot subdivision with lots from 2838 square metres up to 40,000 – and we have already had over 20 enquiries,” he said.
While medical and non-discretionary retail sectors had generally outperformed other sectors since the onset of the pandemic, Knight Frank’s Oliver Totani said that was set to change.
“With the majority of the economy soon to be back in full swing we are seeing the smart capital revert back to the more traditional assets like CBD office and more generalised retail,” he said.
The agency is expecting to finalise the sale of 30 Currie Street, a 10-storey office building in the CBD that was quoted above $40 million during the campaign.
Mr Totani said it was expected the current ‘bull market” in Adelaide had some way to go in terms of buyer activity and depth.
“In a world full of uncertainty, the ever-present low-risk profile of ‘bricks and mortar’ will continue to perform strongly,” he said.
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