Market Trends of Australia Commercial Real Estate Industry
Retail real estate is expected to drive the market
The national retail leasing market was relatively stable in Q3 2023, with a slight increase in gross rent during the quarter. The majority of tenant demand came from established retailers who took advantage of favorable leasing conditions to expand and optimize their store footprint.
In Q3 2023, retailers continued to be opportunistic. Several national fashion and hospitality groups continued to find new high-end retail space along Adelaide's CBD and regional enclosed centers. Louis Vuitton opened a pop-up shop at Adelaide Central Plaza alongside Rundle Mall, alongside luxury retailers Tiffany & Co, TAG, and Heuer.
Three project completions totaled 23,100 square meters, with Devwest's 14,000 square meter District Outlet Centre development in Parafield being the biggest project to complete over the quarter.
The development includes 65 outlet tenancies and plenty of food and beverage opportunities. Average rents were relatively stable across subsectors in the third quarter of 2023, with the strongest year-on-year growth in the large formats retail subsector, growing by 2.1% at an average of AUD 229 (USD 148.77) per square meter. Three major transactions were recorded over the quarter, with Early Settler, at 215 Grote Street, Adelaide, being the largest transaction at AUD 11.9 million (USD 7.73 million).
Adelaide's Office Market Witnesses Mixed Trends in Q4 2023
In the fourth quarter of 2023, net absorption was negative at 300 sq. m, with secondary grade net absorption (-24k sq. m) as the driver of the negative headline figure. On the positive side, it was 23,700 sqm for prime grade.
One office was completed in the market during the quarter, a Walker Corporation development of the Festival plaza along Adelaide’s Riverbank precinct in 40,000 square meters. Rental growth continued to gain momentum, increasing 1.6% in Q4 and 5.6% for the year. There were no major transactions in the fourth quarter, but development sites are still drawing some investor interest.
Vacancy rates in Adelaide increased in Q4 2023, with the headline vacancy rate increasing 2.2 percentage points (ppm) from 18.0% to 18.6%. The prime vacancy rate remained stable at 18.6% due to backfill space created by Adelaide’s largest historical supply of wave. The secondary vacancy rate increased 2.9 pp from Q4 2023 to 17,5% – the highest secondary grade rate increase since Q4 2012.
Q4 2023 saw a significant drop in occupier demand in Adelaide CBD, which marked the end of three consecutive positive quarterly net absorption figures. Adelaide CBD's quarterly net absorption was -300 sqm, driven by a combination of downsizing, centralization, and consolidation. It is important to note that most of the backfill from the occupancy of new buildings in this quarter had already been accounted for over the prior 12 months.
