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News release

The new and the old ‘normal’ for the SA commercial property market

Increased competition for premium quality assets to support yield compression over next two years

ADELAIDE, 5 MARCH 2013 – Commercial real estate has progressed since the onset of the Global Financial Crisis in late-2007 - but will it we get back to ‘normal’ market conditions; or has the real estate market permanently changed?

An upcoming White Paper to be released by Jones Lang LaSalle identifies a range of changes – some of them permanent or structural, others short-term or cyclical, which have been initiated by the Global Financial Crisis.  The Paper will outline what these changes mean for real estate owners, investors and tenants.
At a research event in Adelaide, Australasian Head of Research and Consulting at Jones Lang LaSalle, Dr David Rees outlined the major trends in 2013 for the commercial real estate market in SA.

Dr Rees said, “Across many metrics – vacancy, yields, rents and capital values – commercial real estate markets have returned to something close to ‘normal’ market conditions. But in other respects, such as cross-border capital flows and the gap between property and bond yields, real estate markets appear to have permanently shifted.”
A notable feature of commercial real estate in recent years has been the surge of offshore investment into the domestic market. 2012 saw a strong rebound in property transactions. Jones Lang LaSalle recorded AUD17.2 billion of transactions nationally (office, industrial and retail) and AUD 658,303,436 in SA. Notably, in 2012 offshore investors accounted for 29% of all transactions (> AUD 5 million) across the office, retail and industrial sectors.

Jones Lang LaSalle research notes that a range of global investors and sovereign wealth funds have signalled that they will be lifting their portfolio exposure to the real estate sector over the next few years. This may signal a permanent shift towards real estate globally and in Australia.
Jones Lang LaSalle’s SA Managing Director, Jamie Guerra said, “Adelaide’s capital markets have started seeing increased investor interest from major institutions, super funds and offshore players. The weight of money looking to invest in quality real estate assets supports some yield compression over 2013 and 2014. But investors are becoming more discerning and we consider that the greatest potential for yield compression will be at the high quality end of the market.”
High-low yield spread Adelaide CBD prime office market:

Source:  Jones Lang LaSalle Research

Dr Rees said, “Low interest rates will have an impact on refurbishment and building life-cycles, driving the next cycle of construction. Low interest rates reduce the hurdle rates for investment and increase the payback period. Office markets with an ageing stock of assets are candidates for refurbishment and a new generation of assets that meets efficiency and modern sustainability criteria.”
Jones Lang LaSalle estimates that over three quarters of the Adelaide CBD office stock is more than 20 years old.