Up and at ‘em: Adelaide’s commercial property market 2025
Will 2025 be the year when investment in Adelaide’s commercial property market rebounds? JLL Managing Director and Head of Capital Markets SA Ben Parkinson thinks it might be.
2024 was a year where we saw Adelaide’s commercial property yields retreat from historical lows and investment capital sit on the sidelines for the most part, waiting for some clarity in the macroeconomic environment.
Yet, we also saw some of South Australia’s largest single asset ticket prices materialise with two of the top 10 largest commercial real estate sales on record landing in 2024 – the two 50 per cent share acquisitions of Westfield Tea Tree Plaza and Westfield West Lakes.
Clearly there’s opportunistic investors seeking value, so why the lull in sales activity?
JLL Managing Director and Head of Capital Markets SA Ben Parkinson says the market is on the up
Well, the good times were a great defensive structure for the bad times.
Commercial property values skyrocketed over the COVID-19 period, driving down investment yields and supporting rental growth.
However, in the post-COVID-19 overhang when interest rate escalation and inflation pushed the pendulum the other way and yields entered a decompression cycle, owners weren’t panicked. They were patient.
There was no blood in the water across most sectors, no reason to divest.
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Occupancy levels and income levels were strong and in the office sector – despite what was happening in some other major office markets along the Eastern seaboard where major occupiers were handing back tens of thousands of square metres of office space to landlords – occupier demand in the Adelaide CBD was strong.
In fact, since the start of 2023, net absorption in the Adelaide CBD has been the strongest in Australia (fig 1).
So given this, owners held firm and investors kept their powder dry.
Fig 1. National CBD Office Markets: Net Absorption, Q1 2023 to Q3 2024
But owner and investor pricing expectations are slowly realigning.
Over the nine months to Q3 2024, transaction volumes have reached $1.08 billion, already eclipsing the 12-month 2023 total of $1.04 billion.
With multiple industrial, office and retail transactions with a price tag exceeding $20 million already recorded in Q4 2024, end-of-year volumes are expected to near the 10-year, long-term annual average of $1.26 billion.
So, will 2025 be the year when investment in Adelaide’s commercial property market rebounds?
There’s a lot of supporting factors that indicate that it will.
Investors, who have been patiently waiting on the sidelines, have the capital to deploy; it’s just the opportunity to invest that has been evasive.
Now with macroeconomic volatility lessening and all indicators pointing to downward movement in the RBA official cash rate at some point in the first half of 2025, investor borrowing costs are likely to decrease, spurring further appetite for acquisitions.
Fig 2. Adelaide Commercial Real Estate Transaction Volumes by Sector, 2014-2024
As has been noted before, the opportunity to acquire defensive real-estate assets like large-scale warehouses and neighbourhood shopping centres remains challenged.
These types of assets are typically viewed as recession-proof, given their lease covenants, and are generally low in the divestment hierarchy within diversified property portfolios.
However, in the office sector, occupiers are consistently upgrading accommodation, seeking to relocate from lower grade space – typically low in amenity, well-being and sustainability offerings – to higher-grade office accommodation.
This long-term trend has become even more prevalent in 2024 as businesses look to encourage staff back to the office through enticements such as post-work amenities like proximity to small bars and restaurants, as well as access to gyms and green space.
As occupier demand for well-located, higher quality office space continues, there is a sharply accelerating vacancy risk within older-generation office buildings.
However, it is expected that these older-generation office buildings of scale will increasingly be on the radar for agile developers and investors looking to reposition or repurpose.
Whether repurposing these ageing towers into purpose-built student accommodation (PBSA) or repositioning them into modern, efficient office space, the opportunity to acquire these towers is plentiful.
There’s no denying there’s a few around. Even after the historic supply wave that occurred in the Adelaide CBD over the last few years, which added to date 149,100 sqm to total stock, we still have the highest proportion of secondary grade office space of all Australia’s CBD office markets (fig 3).
Fig 3: National CBD Office Markets, Stock by Grade, Q3 2024
We’re expecting transaction volumes to continue to trend upwards in 2025, with the reaction time to any positive economic news to be swift from investors.
This will result in more capital inflows from interstate and offshore to the Adelaide market.
But with our local private investors and syndicators also primed for the next investment wave, there will be stiff competition for any asset put to market.
For over 200 years, JLL has helped clients buy, build, occupy, manage and invest in a variety of commercial, industrial, hotel, residential and retail properties. Driven by our purpose to shape the future of real estate for a better world, we help our clients, people and communities SEE A BRIGHTER WAY. Learn more at jll.com
