Adelaide's prime office market is expected to deliver risk-adjusted returns superior to Australia’s other capitals over the longer term, according to CBRE.

In Viewpoint: Space, subs and science: is Adelaide becoming Australia’s smart city?, the firm highlights that while the South Australian economy has ostensibly been slow and steady, annual growth in state final demand on a per-capita basis has outperformed Australia’s other states over the past 20 years.

CBRE'S Australian Head of Research Bradley Speers said the trajectory of defence, resources and technology research, development and investment could stop the brain drain from South Australia and support the future performance of the city’s office market.

At a glance:

• CBRE has released Viewpoint: Space, subs and science: is Adelaide becoming Australia’s smart city?, highlighting that annual growth in South Australia's final demand on a per-capita basis has outperformed Australia’s other states over the past 20 years.
• The report indicates that Adelaide is set to benefit from the creation of smart jobs associated with the state’s submarine and ship building programs and the Australian space agency.
• According to CBRE Australia's Head of Research, Bradley Speers, "Adelaide’s CBD office sector is expected to stand out on a national basis."

“Curtailing the brain drain will support stronger growth in white collar employment over the next five years than what was recorded over the past 15 years,” he said. 

“This will lead to stronger tenant demand, generating rental growth that will boost the total returns generated in the relatively high-yielding prime CBD Adelaide office market.

"Historically, the Adelaide prime CBD office market has delivered risk-adjusted returns superior to Australia’s other capitals, and there is little reason to believe this trend cannot be sustained over the longer term.”

CBRE’s Viewpoint highlights that Adelaide is set to benefit from the creation of smart jobs associated with the state’s submarine and ship building programs and the Australian space agency.

As part of the report, CBRE divided Adelaide’s prime stock into either a new category, for assets built post-2006 or an old category, for stock built pre-2006 which had received upgrades but typically offered smaller floor plates.

CBRE Office Leasing Senior Director Andrew Bahr noted the take up of space from these groups had well and truly begun, with Adelaide’s “new” prime market being the early beneficiary.

“Looking at the new prime sector in isolation, the vacancy rate is now less than 3 per cent versus 20 per cent for old prime stock,” he said.

“With the take up of new space continuing, this will flow into the other sectors of the market and lead to stronger net effective rent growth over the next five years.”

Mr Speers noted that further improvements were likely to flow from the Adelaide City Deal, which would grow the city’s innovation economy as would initiatives such as Lot Fourteen, which was set to become a hub for research, innovation and entrepreneurialism in technology and the arts.

 "Adelaide’s CBD office sector is expected to stand out on a national basis as a low-risk/high return market that will provide a good portfolio hedge against Sydney and Melbourne," he said.

“Similar to growth in the South Australian economy, Adelaide office market total returns historically have demonstrated low volatility.

"However, Adelaide’s prime CBD office yields are typically higher than other capital city office markets."

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