Adelaide office market seeing suburban tenants favour the CBD

Adelaide 25 August 2023 –  The Adelaide office market is witnessing a notable trend as tenants increasingly switching from fringe locations, such as Greenhill Road and Fullarton Road, in favour of the more vibrant Central Business District (CBD).

In a post-COVID world where flexibility and enhanced amenities are paramount, tenants including RAA, AGL, Nova Systems, KBR, Fivecast and Perks Business services have inked deals opting for the CBD's convenience and amenity.

This shift not only benefits the ever flexible workforce but also highlights the importance for CBD office building owners to attract the right tenants and provide modern, fitted-out spaces for long-term capital value preservation and growth.

It is interesting to observe the reversal of tenant mobility into the CBD below:

The Call for Flexibility:

In the wake of the pandemic, tenants now prioritize workplace flexibility more than ever. In some instances traditional long-term leases are giving way to flexible arrangements that align with evolving business needs.

Unlike fringe locations, the CBD provides various short-term options that allow tenants to easily adapt their office space to accommodate fluctuations in demand and support growth plans. This flexibility fosters optimal resource utilization while accommodating the changing nature of work.

Embracing Amenities and Retail Convenience:

Beyond flexibility, tenants also prioritize access to amenities and retail convenience that enhance the overall workplace experience. Fringe locations often struggle to provide an enticing array of amenities, primarily limited to basic food offerings. In contrast, the CBD offers a diverse range of amenities and retail experiences.

Tenants can conveniently access grocery shopping, a wide array of dining options, and renowned restaurant precincts like Rundle Street, Gouger Street and Hutt Street. Crucially, the CBD houses essential services, including retail shopping, banking facilities, pharmacies, and other convenience-based retail.

A key factor in the bifurcation between Core (16.2%) and Frame (11.1%) vacancy rates as shown below:

Attracting the Right Tenants for Building Owners:

The influx of tenants into the CBD highlights the need for office building owners to adapt and attract suitable tenants. To preserve and grow the capital values of their assets, building owners must offer modern, fitted-out spaces that meet evolving tenant expectations.  Whether the introduction of flex spaces, Speculative suite fit outs, state-of-the-art technology, and collaborative work environments significantly enhance their appeal. Building owners can position themselves as leaders in the CBD market by recognizing the value of amenities, retail convenience, and fostering a sense of community within their properties.

The net carbon zero targets of corporate tenants and their attraction cannot be underestimated by investors moving forward.

Preserving and Growing Capital Values:

By attracting the right tenants and providing modern, fitted-out spaces, office building owners in the CBD can safeguard and increase the capital values of their assets. The continuous demand for quality office space in the CBD ensures rental growth and fosters long-term stability.

Additionally, offering amenities and services that enhance the tenant experience, including on-site fitness centres, communal areas, and secure parking facilities, establishes properties as valuable and sought-after assets, both in terms of financial returns and tenant retention.

What does the future hold for the Fringe?

This is not solely a South Australian phenomenon as we are also seeing some similar trends in other non-CBD locations such as St Kilda Road in Melbourne.  In St Kilda Rd there have been several acquisitions by developers looking to reposition assets either for commercial or residential conversion. 

Those choosing to reposition the office assets in these locations need to keep pace with the CBD and ensure that tenant amenity, End of trip facilities and wellness investments are state of the art together with investment in fitted out space ready for occupation.

Conclusion:

The ongoing migration of tenants from fringe locations to the Adelaide CBD is a testament to the changing demands of the modern workforce and business landscape. The CBD's offerings of flexibility, abundant amenities, retail convenience, networking opportunities, and a thriving social scene cater to these evolving needs. Office building owners in the CBD must recognize this trend and invest in modern, fitted-out spaces to attract and retain the right tenants, preserving and growing the capital values of their assets. As the CBD continues to evolve as a dynamic hub of business activity, embracing this transformation is critical