This article is from the Australian Property Journal archive
THE chase for yield is increasingly leading investors to the Adelaide commercial market, as German group Real I.S. is believed to be in due diligence with a private buyer for its A-grade 77 Grenfell Street tower at an initial passing yield of 8.25%.
Savills capital transactions director Peter Isaksson said 2017 has seen interstate and overseas buyers look to the Adelaide market, having commented that “it is very hard to buy property on the eastern seaboard, where yields are very low and looking like they’ll contract further next year”.
It appears the 16,484 sqm 77 Grenfell Street tower will transact with a price tag in the vicinity of $110 million, having initially been tipped to fetch more than $105 million. It has been marketed by CBRE in conjunction with Colliers International with 99% occupancy, and 96% leased to the South Australian government.
Blackstone is hoping for more than $200 million for its 80 Grenfell Street building Rundle Place, as are Dexus and office partner CPP Investment Board for their ANZ House at 11 Waymouth Street.
Savills said it recently contracted a property in Rundle Mall, Adelaide’s major retail precinct, for a circa 5.0% yield.
Meanwhile, demand from the South Australian government and tenants linked to the mining and defence industries will offer opportunities for Adelaide office landlords in 2018, following on from the city recording positive net absorption “for the first time in years”, according to Savills.
Having secured 7,000 sqm at 50 Flinders Street, the state government currently has requirements out for circa 9,000 sqm, 14,000 sqm and 22,000 sqm spaces.
Office leasing director Adam Hartley said an increase in smaller companies that supported the mining and defence industries was expected in 2018, and they would require modern and flexible workspace.
“There will be an opportunity for lower-grade buildings to be repositioned to suit this increasing demand,” he said.
Smaller tenants drove activity in the sub-500 sqm market upwards through 2017, which saw vacancy rates stabilise at 16.1%.
Hartley said key leases include the Attorney-General’s Department and “another blue-chip corporation soon to commit to the Charter Hall development on Franklin Street”.
Colliers research in August showed Adelaide had recorded its highest net absorption figures since the beginning of 2014, at 4,624 sqm in the six months to July and 6,016 sqm over 12 months.
Vacancies are tipped to firm to 15.5% by July 2018, with all grades experiencing moderate tightening, and rents rising slightly. They were at $397 per sqm for premium-grade, $381 per sqm for A-grade and $320 per sqm for B-grade.
Data for the third quarter of 2017 from CBRE had prime grade office incentives at a high 36%, and secondary grade incentives are stable at 39% following soft occupier demand, with effective rents down 0.9% and 4.1% respectively.
Australian Property Journal
