Negative office demand spells opportunity

Lower grade office vacancy rates in Adelaide's CBD have reached their highest levels on record.

The Property Council of Australia's latest biannual Office Market Report reveals vacancy in D-Grade stock in the Adelaide CBD have reached 20.6 per cent, eclipsing the 20.4 per cent vacancy set more than two decades ago in July 1995.

In the six months to January 2016, D-Grade vacancy increased from 19.7 to 20.6 per cent due to -2,569sqm of net absorption. Over the same period, 1,646sqm was added.

CBD premium building stock vacancy decreased from 9.4 to 7.7 per cent and was the only segment to record a decrease.

The Adelaide CBD office market vacancy in the six months to January 2016 hit 14.1 per cent - up from 13.5 in July last year - and is now at its highest level of vacancy since July 1999.

The latest increase to 14.1 per cent was due to supply additions and negative demand - a trend we need to promptly reverse.

Looking forward, there is 43,802sqm of space due to come online in 2016 with 37,000sqm of mooted space.

SA Executive Director of the Property Council, Daniel Gannon, said Adelaide's vacancy levels will continue to trend upward until we address negative demand.

Net absorption of -2,304sqm contributed to the C-Grade vacancy increasing from 17.2 to 17.9 per cent, the highest level in 12 years.

“The messages coming out of this data are crystal clear - we need to focus on positive demand and solve our adaptive reuse challenges,” Mr Gannon said.

“That means abolishing inefficient transactional taxes that dampen our economy, lowering land tax rates, and reducing onerous red tape that discourages building owners from repurposing their ageing stock.

“If we build the right business and economic conditions, demand will take care of itself. Until we are genuinely the best place in the nation to do business, then you can expect these rates to continue to spiral out of control.

“Currently, development and building code barriers prevent building owners from transitioning their ageing commercial stock to prime multi-residential offerings. More residential options in the CBD would also result in more vibrancy and a stronger city population, which means job opportunities.”

In the six months to January 2016, Adelaide Fringe vacancy decreased from 8.0 to 7.1 per cent. This was due to 1,975sqm of withdrawals and 63sqm of net absorption.

In positive news, no grade of Fringe space recorded a vacancy increase over the period.