SOME HOPE AHEAD FOR ADELAIDE OFFICE MARKET

A SLOWDOWN in the construction cycle and positive net absorption rates are expected to ease office vacancies in Adelaide's CBD by the end of this year.

However, Adelaide vacancies are likely to lag major capital city markets for some time, according to Colliers International.

The latest report issued by Colliers International confirmed that recent property vacancies within the CBD have been largely due to a supply flood of 200,000sqm of office space over the past five years.

According to Colliers associate director of research Kate Gray, demand for office space remains tepid with the average six-month net absorption over the last five years just under 8400sqm.

"There are several reasons for the differences in demand with a combination of lower than average white collar employment growth and the movement of many of the larger businesses to activity-based work models," she says.

In contrast, the first half of the last decade saw average six-month net absorption of more than 18,000sqm.

James Young, national director of office leasing at Colliers, says Adelaide is likely to see increased white-collar presence by the end of the year now that the stocking cycle has ceased, particularly in the small-to-medium business, and in the education and health sectors.

"The good news is that the Adelaide market is nearing the end of the supply cycle, so any improvements in demand are likely to see vacancy tighten by the end of 2016," says Young.

"The current forecasts suggest modest growth in white-collar employment for 2016 with bigger gains expected during 2017."

In Adelaide, secondary leasing stock accounts for more than double the rate of major cities including Sydney, Melbourne and Brisbane.

Gray says this is an important factor to note when scrutinising Adelaide's current plans for redevelopment of older commercial space, or lack thereof, considering long-standing C and D-grade stock statistically have a far higher vacancy rate and are less cost-effective to reconstruct.

"Most other CBD markets have seen secondary space withdrawn and redeveloped to a new commercial building or, increasingly in the cases of Sydney and Melbourne, a conversion of use to residential through either the refurbishment of the current building or demolition to make way for new high rise residential towers," says Gray.

"At this stage this trend of converting commercial to residential or hotel use by withdrawing commercial stock is not particularly evident in the Adelaide market.

"The reason there is limited impact on the withdrawal of older commercial stock is because the Adelaide CBD still has a significant supply of development ready sites that do not require multi-storey demolition."

Gray says that unless lower grade buildings are excluded from the stock list when vacancy is calculated, Adelaide will likely continue to see higher vacancy rates than other capitals.