_Adelaide office investment outperforms nationally over the past 20 years

• Over the last 20 years, the Adelaide office market has transitioned through two distinct cycles which have accelerated capital values and provided strong returns for investors
• Knight Frank research has found the 20-year average unlevered total return generated from office investments in the Adelaide CBD was 11.6%, a 130 basis point spread to the national average of 10.3% across all six CBDs
• Adelaide was also the second least volatile CBD, with the standard deviation over that time being 4.8%, only 10 basis points higher than Melbourne at 4.7%

Adelaide, Australia – ADELAIDE has led the way for office investment performance in terms of historic total returns and relative stability over the past 20 years, according to recent research from Knight Frank.

The research found the 20-year average total return from office investments in the Adelaide CBD was 11.6 per cent, ahead of the Melbourne and Perth CBDs at 10.3 per cent, the Brisbane CBD at 10 per cent, the Sydney CBD at 9.9 per cent and Canberra at 9.4 per cent.

Adelaide has also been one of the least volatile cities for average returns, with the standard deviation over that time frame being 4.8 per cent.

The data placed Melbourne as the least volatile CBD nationally, with a standard deviation of 4.7 per cent, while the Perth CBD was most volatile with a standard deviation at 11.5 per cent.

Adelaide has benefitted from yield compression to a greater degree than other markets over the past 20 years – a trend that continued during pandemic – while rental growth has been comparable to other markets.

Knight Frank Chief Economist Ben Burston said: “While Sydney and Melbourne tend to attract more attention because of their larger market size and stronger rental growth performance over the past five years, Adelaide has had a stronger track record of long-term growth due to sustained yield compression, particularly since 2019 when capital value growth accelerated markedly.

“In addition, the market has been relatively stable, with fewer sharp fluctuations in rental performance than other markets like Brisbane and Perth.

“Over the past three years Adelaide has gained favour with a wider range of investors and pricing is now much more closely aligned with the major eastern cities.

“Looking ahead, higher funding costs for property investors are beginning to impact all markets and are a clear risk to the outlook. The sharp rise in bond yields and two to five year swap rates has attenuated in recent weeks, after peaking in mid-June, but the full effect of the rise since January has yet to play out and office yields in most markets are likely to shift out in the second half of the year.” 

Knight Frank Head of Investment Sales in South Australia Oliver Totani said: “Over the last 20 years the Adelaide office market have transitioned through two distinct cycles, which has accelerated capital values and provided strong returns for investors.

“During the first ten-year cycle, Adelaide experienced prominent rental growth and over the last ten years we have experienced a continued yield firming bias on the back of low interest rates, the abolition of stamp duty and the city’s compelling value proposition when compared to Australia’s east coast.” 

Knight Frank Head of Institutional Sales Max Frohlich said: “With pressure on the RBA to lower inflation by tightening monetary policy, nationally we are seeing yields starting to soften and as we transition out of this yield compression cycle, capital value uplift will be reliant on rental growth.

“Overall, however, the outlook is positive for Adelaide.

“With the wave of new supply coming to the market, economic rents for pre-committed buildings have set benchmarks which will have a positive impact on rents for existing high-quality Premium and A-Grade accommodation.”

Mr Totani said with more employees having the option of working from home, tenants that want to provide a collaborative working environment will - now more than ever - need to provide a high level of amenity to entice staff to come into the office.

“New generation buildings or refurbished buildings that provide this level of accommodation will continue to be highly sought after.” 

For further information, please contact:

Vanessa De Groot – Marketing & Communications, Knight Frank

Vanessa.degroot@au.knightfrank.com +61 410 460211

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Notes to Editors
Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank has more than 16,000 people operating from 384 offices across 51 territories. The Group advises clients ranging from individual owners and buyers to major developers, investors and corporate tenants. For further information about the firm, please visit knightfrank.com.