Adelaide CBD office market stagnant, entry level assets mostly strata suites: HTW

Adelaide CBD office market stagnant, entry level assets mostly strata suites: HTW
Adelaide CBD office market stagnant, entry level assets mostly strata suites: HTW

Entry-level office accommodation within the Adelaide CBD is essentially limited to strata suites, according to valuation firm Herron Todd White’s latest office market review. 

This market has been relatively stagnant, rental growth has been limited and the vacancy within the CBD is high. 

Below are a range of sales within the Adelaide CBD that HTW considers are entry level and show analysed yields ranging from 4% to 8%. 

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 Adelaide CBD office market stagnant, entry level assets mostly strata suites: HTW

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Adelaide CBD office market stagnant, entry level assets mostly strata suites: HTW

There are affordable freehold options within the CBD fringe. The price of properties will vary significantly, with the alternate use possibilities and development potential meaning that the investment is aligned to factors other than its office use. 

As an example of a sale, a 67 sqm office suite (above and below) at 401/147 Pirie Street in the CBD sold recently for  $376,000 through Leedwell Property, according to Corelogic RP Data.

 Adelaide CBD office market stagnant, entry level assets mostly strata suites: HTW

The entry-level office accommodation in suburban localities is most notably former homes converted to office use along main arterial routes, add HTW.

Along these arterial routes the demand and therefore value levels will vary significantly between locations and building types; however, similar to CBD strata suites they are predominately sold to owner- occupiers. 

Escalating outgoing costs and limited rental growth is eroding investment returns. The market is more risk adverse and low interest rates can make owner- occupation more attractive than renting, indicating that owner-occupiers are more active in this space. 

Mum and dad investors looking to acquire entry- level office space should think more broadly about alternate uses and the potential of future rezoning; and if buying a leased investment ensure that the rent is sustainable. 

Cash flow positive office investment could have a higher risk of vacancy, with the possibility of needing to offer incentives such as lower rent to attract a new tenant, however, these costs may be beyond the entry-level investor. Lessoning those risks by looking to more prominent localities such as in the inner east CBD fringe or in the CBD will possibly push the price point beyond entry-level. 

Tags: 
Adelaide Office Market

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