South Australia 2020 property market outlook: Savills

South Australia 2020 property market outlook: Savills

17 January 2020

Savills’ recently provided a 2020 property market outlook for each state in Australia. Here’s a summary of predictions for South Australia.

Capital Transactions

According to Rino Carpinelli, National Head of Asset Management and State Managing Director at Savills Australia, Adelaide is continuing to experience sound demand from institutional and overseas investors due to the attractiveness of yields relative to the eastern states together with the stable long-term growth it is well known for. 

“The Adelaide story is compelling, with a strengthening Office Leasing market, abolition of stamp duty, significant federal and state government expenditure in technology, defence, medical, education and space industries and significant private capital expenditure with a combination of apartment towers, office buildings, student accommodation and hotels under construction within the CBD,” said Mr. Carpinelli. “This activity is driving increased enquiry from groups who previously overlooked Adelaide.”

“Notable transactions over the past 12 months have included 100 Waymouth Street, 55 Currie Street, 25 Grenfell Street, 80 Flinders Street, 431 King William Street and 99 Gawler Place with several others currently under due diligence. A-Grade market yields have over the past 12 months tightened, being influenced by the eastern seaboard and the low interest rate environment with yields likely to remain at historical lows for some time.”

“We are predicting continuing demand for CBD assets in the New Year, being largely driven by institutional and offshore investors with a focus on premium grade buildings and/or genuine repositioning opportunities.” 

Industrial & Logistics

“During 2019 we experienced increased activity in all areas of the sales and leasing markets,” said Steve Bobridge, Director of Industrial & Logistics at Savills Australia. “While this occurred mainly in the second half yields for quality long term lease investment properties were being achieved below 6.0% in the sub $5 million price bracket.

Mr Bobridge said yields are currently expected to continue to firm with a lack of quality stock available in the market. The abolition of stamp duty and the lower interest rate environment provide a healthy return for industrial and commercial investments.

“We see 2020 anticipating increased volumes of sales and leasing transactions in the market as the Defence industries ramp up their requirements together with other industries including mining and food production,” he said. “We are also seeing a number of new projects in Adelaide with the Defence requirements.”

“Interstate and overseas investors are also very keen to investigate opportunities available in SA with an attractive yield in comparison to the eastern seaboard.

Office Leasing

The 2019 South Australian Office Leasing market has provided a mix of positive activity and reduced business sentiment, as we saw a continued increase in net absorption that ultimately provided another year of progressive results.

Adam Hartley, Director of Office Leasing at Savills Australia said tenants across a variety of industries have been attracted to SA because of economic factors (cost effective rental rates) and business infrastructure, including 10 Gigabit Network providing the fastest and most cost effective internet connection. The expansion of companies in the Defence and Mining industries have also contributed to the reduction in vacancy.

“Prime grade vacancy remains hard to find, particularly for large corporations seeking multiple floors, containing the flight to quality and causing an increase in tenants staying in their current location,” said Mr Hartley. “New buildings such as 108 Wakefield Street, Adelaide (due for completion in Aug 2020) will provide larger tenants with a rare new building option.”

“The fringe market has remained steady, with multiple small to medium leasing transactions taking place in 2019. A number of growing tenants have moved to the CBD to take advantage of the facilities that the CBD provides (mainly public transport), and conversely we have also seen some tenants move to the fringe to take advantage of the higher carpark ratios.”

Mr Hartley explained that during the middle of the year the local government announced changes to Land Tax, which inadvertently caused confidence in the business sector to fall, and leasing activity noticeably slowed. Now the proposed changes have been retracted for review, enquiry and business sentiment has started to return, and Adelaide’s Office Leasing is looking forward to another positive year in 2020.

“Whilst we may see a slight increase in overall vacancy due to the new GPO tower coming on line in October 2019, and the planned new building at 108 Wakefield Street in August 2020, the outlook for 2020 is for further positive absorption, with increased tenant movement in both the Adelaide CBD and fringe market, with increased tenant activity stemming mainly from Defence, Technology, Education and Co Working.”

“Savills Adelaide office leasing team has grown to 3 full time leasing agents, and has been involved in some of the largest leasing transactions. This growth in professional services along with a great mix of clients buildings, is shaping up for a busy 2020.”

Retail Leasing

According to Natasha Bertram, Executive of Retail Leasing at Savills Australia, “Adelaide recorded a drop in vacancy levels within neighbourhood and convenience-based shopping centres in 2019. Supermarkets continue to perform well and we continue to see price reductions across a range of lines. Many owners are now focusing on these options along with more food and service offerings to keep centres full rather than rely on the more traditional retail tenant.”

“Both Mecca and Sephora opening this year in Rundle Mall along with H&M last year has certainly increased enquiry from larger retail brands for Adelaide, although there is minimal vacancy to accommodate these types of brands.” 

“Strong retail interest continues to grow in areas where there are new housing developments. This is particularly evident in both Northern areas of the city and the Mount Barker region.”

“Next year we envisage a similar year to 2019, with strong interest in service-based tenants opting for centres, rather than opting for the more traditional retail tenant. We believe owners who move beyond traditional tenant mixes and incorporate services not offered on line will continue to perform well.”

“The continued growth of large format is anticipated to continue with Kaufland already commencing works on their first store planned to open in mid-2020 with more to come. The large areas of development in the North of Adelaide will also see growth in this area.”