How would you characterise your market at the moment?
It’s patchy. The market lacks any real sense of momentum. There are sporadic bursts of activity but there is very little pattern or consistency to demand at the moment.
Are there any trends you are noticing among the tenants you are talking to?
Tenants are still looking for good quality existing fit out and are prepared to accept a higher on-going rental cost if it means being able to reduce up-front capital costs. Good quality space with an existing fit out of equal quality is hard to secure and tenants are aware of this.
Within the secondary market (lower B Grade and C Grade), there are more options available to tenants resulting in those tenants being more aggressive in their approach.
What do you think will be the biggest influence on your market in Q2?
The continued impact of backfill space will have a major influence on the market in Q2. The refurbishment of 13,000 sqm at 30 Flinders Street (former SA Police headquarters) will be largely complete by Q2 and WorkCover will vacate around 12,000 sqm at 100 Waymouth Street. Whilst some of the space in these buildings is already committed, these large vacancies are likely to have an impact on incentives.
What will rents and incentives do in Q2?
Rents will remain stable; however incentives are beginning to show signs of increasing. This reflects an increase in supply as a number of existing buildings are vacated by tenants, moving into new buildings. The backfill space is in turn being refurbished and aggressively marketed leading to upward pressure on incentives as owners seek to fill large vacancies.
What should landlords do to adapt to these market conditions?
Be aware that incentives may trend upward in the short to medium term. Landlords should be flexible in offering incentives and consider creative rental structures to assist with tenant capital costs, such as amortisation of fit out costs.
Director, South Australia
Recent Leasing Deals
Market Balance, as at March 2012
Download a PDF of the Adelaide Q112 Market Overview