Net absorption in Adelaide’s CBD Office Market has reached its highest level in 15 years, with an uptick in demand for office space alongside limited new supply additions, according to the latest research from Knight Frank.

Knight Frank’s Adelaide CBD Office Market – September 2024 report found there was an upsurge in net absorption in the first half of 2024, with an increase from 673sq m in January to a near-record high of 29,041sq m in July, well above the 10-year average of 3,955 sqm. 

This marks the largest six-monthly absorption in 15 years, since January 2009.

Knight Frank Partner, Head of Leasing SA Martin Potter said net absorption had been rising for 18 months, which indicated demand was increasing amidst limited new supply additions.

“Both State and Commonwealths Governments have taken additional space across several agencies together with movement to the CBD from suburban or fringe locations,” he said.

“We are continuing to see positive levels of enquiry as tenants look to take advantage of the competitive incentives available in the market to upgrade their office accommodation.

“While “flight to quality” has been a continuing trend in recent years, the tenant “experience” picture of late shows an evolution in the needs and desires of tenants in Adelaide beyond mere aesthetic appeal towards more of an ESG focus.

“Tenants have been moving to higher quality office space with a greater level of amenities and more environmentally sustainable initiatives at their disposal, with a clear focus on the overall tenant experience, and encouraging staff back into the office. 

“As a result, newer generation stock completed after 2006 continues to attract the greatest demand.”

The Knight Frank report found there was a vacancy spread between new (11.08%) and old (37.17%) generation stock of 26.09 percentage points as a result of this disparity in demand.

Meanwhile, the overall vacancy rate in Adelaide’s CBD office market fell from 19.3% in January 2024 to 17.5% in July 2024, driven by the high net absorption.

Knight Frank Partner, Research and Consulting Dr Tony McGough said new development supply in the Adelaide CBD office market has been all but non-existent in the first half of 2024, with no new development additions recorded in the period.

“This is in stark contrast to the last 18 months in which there was 30,000sq m-plus added to the market in each six-month period,” he said.

“We have, however, seen refurbished supply added to the market, with more than 44,000sq m due in H2 2024.”

With greater absorption, lower levels of new supply and continued strong demand from market participants, incentive levels haven’t shifted much during the six months to July 2024, according to the Knight Frank research.

“The expectation is that incentives will see upward pressure for secondary assets for the foreseeable future, while prime assets should see incentives stabilise,” said Dr McGough.

“Despite a strong performance over the past 12 months, in H1 2024 we saw slowing rental growth, with prime gross rental rates rising by just 1% and secondary stock averaging 0.6%.”

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