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News release


Adelaide outperforms capital city markets over the past 15 years

A new research paper by JLL argues there is a strong case for a higher allocation to Adelaide’s office market for investors looking to diversify their commercial portfolios

​​​ADELAIDE, 17 NOVEMBER 2014 – Commercial property investors tend to flock to the eastern seaboard markets in Australia, particularly Sydney and Melbourne, but new analysis shows that the Adelaide office market has been the quiet achiever and stacks up well when compared with the bigger CBD office markets.

A new JLL research report  – Adelaide CBD office market – the investment proposition​ states that on a range of metrics, the Adelaide market is an attractive investment option, providing core assets with stable returns and a quality tenant base at a higher yield than the larger of Sydney and Melbourne.

JLL’s Head of Sales & Investments, South Australia Roger Klem said, “Our research confirms our long-held view that there is a strong long-term case for investors to increase their portfolio allocation to the Adelaide office market.

“On a risk adjusted basis, Adelaide has outperformed all other capital city prime CBD office markets, with attractive average total returns and relatively low volatility. Over the last 15 years Adelaide recorded average total returns of 12.08% per annum.  By comparison, Sydney recorded 8.46% and Melbourne 10.07%.”

When comparing the performance of Adelaide against other CBD office markets using key investment criteria, the JLL report found:

1. Adelaide has consistently achieved more stable returns compared with other CBD office markets;
2. Adelaide has been the second most liquid office market over the past 10 years;
3. Adelaide has a quality and diverse tenant profile that contributes to relatively stable demand for office space.

1. Consistent returns from the Adelaide CBD Office market:

Mr Klem said, “Adelaide provides a ‘core-plus’ investment opportunity, with prime grade yields currently 172 basis points higher than in the Sydney CBD. The relatively high yields are a reflection of investors pricing a greater risk into the Adelaide market compared with the larger eastern seaboard markets and the expectation of slower capital growth. 

“However, rental growth has been less volatile and prime grade vacancy has typically been lower in Adelaide than in the Sydney CBD. This raises the question – should there be such a risk premium attached to prime grade stock in Adelaide?”

2. Liquidity in the Adelaide market
JLL’s liquidity indicator shows Adelaide was the second most liquid office market over the past ten years. Only the Brisbane CBD has seen a greater level of activity as a percentage of total capital value of stock.

Adelaide table 1.jpg 

JLL’s Director, Strategic Consulting, David Snoswell said, “Adelaide is the smallest of the Australian monitored CBD office markets by NLA and capital value, accounting for just 3% of Australia’s prime grade CBD stock.  

“However, it has a relatively high proportion of assets in the $50-$100 million price range. Adelaide accounts for 19% of Australian assets in this price bracket and it is this segment of the market that has proven to be most active.”

Mr Klem said Adelaide is often overlooked by many of Australia’s largest fund managers, with most A-REITs holding an under-weight position in Adelaide typically sitting at just 2% of their total office portfolio.

“With demand for prime assets outweighing supply, JLL is witnessing more fund managers looking outside the eastern seaboard CBD markets to grow their property portfolios.  The prime grade Adelaide CBD market meets many of the investment criteria that fund managers are seeking, particularly higher yields that are likely to be accretive to earnings, moderate rental growth and consistently high occupancy levels.

“Private investors and syndicators have consistently targeted the Adelaide CBD ahead of institutional purchasers, however those AREITs that have ventured into South Australia have been rewarded over a longer term horizon with strong total returns and higher yields used to balance assets located in the eastern seaboard,” said Mr Klem.

3. A diverse tenant base in Adelaide:
Adelaide has a more diverse tenant base than other mainland capital cities, with the main four office generating industry sectors in the CBD accounting for a relatively low overall proportion of office based employment (66%). The top four industry sectors that make up 66% of Adelaide’s base office demand are: Public Administration, Professional Services, Finance & Insurance and Education & Training. 

Mr Snoswell said, “This relatively low reliance on any one employment sector provides a more stable employment base for the Adelaide CBD office market, which is highlighted in relatively stable demand, as measured by net absorption. Even with the subdued demand that has been present in the Adelaide CBD office market over the last three years, the decline in total occupied stock has still been less than 1% in each year. Net absorption in prime grade CBD stock has actually been positive, with tenants showing their preference for quality prime grade stock over secondary grade stock.”​

Adelaide report.jpg