Adelaide office market on hold as Olympic uncertainty bites

Property investors, tenants and developers are holding fire on their next property plays as the market waits for solid news on the Olympic Dam expansion.

The Property Council’s Office Market Report for July 2012 shows the Adelaide office market holding steady despite weak demand for space, with the Adelaide CBD (the Core and Frame markets combined) vacancy rate declined slightly to 7.7 percent from 7.8 percent. The Fringe market, however, saw a moderate increase in demand for space driving vacancies down from 6.6 percent to 5.5 percent.

Property Council of Australia (SA Division) Executive Director Nathan Paine says the combination of soft business conditions, uncertainty about the Olympic Dam expansion and falling confidence among the property sector kept office movements low.

“While these results are effectively neutral, they clearly show that there is little additional demand for office space,” Mr Paine says.

“Office vacancies can be seen as a proxy for white-collar employment, so these figures tell us that the business community is in a holding pattern, assessing the next quarter before it pulls the trigger on employment decisions.”

“Given the unique set of global and local circumstances, those decisions really could go either way. But slow demand across the board is clearly having an impact on the number of new construction projects, which flows onto other sectors of the industry.”

While demand for commercial property in the Fringe was up moderately, weak demand in the CBD effectively cancelled this out.

The only growth in demand for CBD space occurred in A Grade stock with 9971sqm absorbed. Negative net absorption in the lower grades (B, C and D Grades) pushed vacancies upward to more than 6 percent. However, the increase in vacancy was offset slightly by withdrawals.

If the net balance of demand remains, the key driver of office vacancies in the short term will likely be supply: more than 55,000 sqm is due to come online in the CBD in the second half of 2012, and more than 4,700 sqm in the Fringe.

Mr Paine says while the waiting game would sap industry confidence, the strength of underlying fundamentals indicated the local industry should hold its nerve.

“While there’s no doubt some people are doing it tough, the reality is we’re still far better off in Australia than virtually any other nation, and South Australia does retain some strong future prospects of its own,” Mr Paine said.

“We have to remember that Olympic Dam is not the only project in the state, there are plenty of other projects still rolling out and many more to come.”

“Things will stay tight for a while, but if we hold our nerve and refuse to buy into the self-defeating cycle of negativity that only serves to scare consumers away from spending, we can come out of this and enjoy the upside.”

Key market indicators, Adelaide CBD (aggregate)

Key market indicators, Adelaide Fringe (aggregate)

For more information contact:

Nathan Paine,
Executive Director, Property Council of Australia (SA Division)
0448 445 177

For full analysis and coverage, visit the dedicated website: www.officemarketreport.com.au