More turbulence ahead for fragile Adelaide office market: BIS Shrapnel

More turbulent times are ahead for the already fragile Adelaide office market, with predictions that the CBD vacancy rate could surge to as high as 15% in 2015.

According to the latest BIS Shrapnel Adelaide Commercial Property Prospects 2013 to 2023 report, the weak South Australian economy and lack for growth drivers for the state over the next few years will see the city's current vacancy rate lift from 12.1% to a peak of between 14% and 15% in 2015. It is not expected to fall below 14% until 2017.

Commenting on the state of the local economy, the author of the BIS Shrapnel report Maria Lee said "major hospital building projects are winding down, manufacturing and other sectors negatively impacted by the high Australian dollar remain weak and the state looks likely to largely miss out on the dwelling building upswing that is underway in some other parts of the country.”

The deferral and scaling down of the Olympic Dam expansion was also cited as a "key factor" in the weak outlook.

As such, it is forecasting a sustained period of leasing market weakness, creating difficult and competitive conditions for landlords. "Leasing incentives are expected to be scaled up further and effective rents—which are already off their peaks—are forecast to fall by another 10% plus in the prime market and 20% in the secondary market," it said.

BIS Shrapnel was more upbeat about the longer term prospects for the state economy and local office market. It believes SA will be a major beneficiary of a more substantial fall in Australian dollar and the structural change that brings. "The benefit will be felt not only in the manufacturing sector, but also in agriculture, tourism, education services and mining” said Ms Lee. If and when the Olympic Dam expansion gets under way, she said, that should boost construction and have spill-over effects to other industries and lift the pace of growth in the state economy to match, or even outperform, the wider Australian economy for a period of time.

“The office market will clearly benefit from this upturn ... but landlords have a long time to wait before they see a substantial pick-up in rents” she concluded.

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