As Australia’s fifth most populous city, Adelaide hasn’t always been first choice for real estate investors who have more often looked to the country’s biggest markets, Melbourne and Sydney.
But the landscape is rapidly changing, and Adelaide is fast becoming a hot spot for both foreign and domestic capital.
“Although the first wave of offshore investment that entered Australia was concentrated in Sydney and Melbourne, as investors continue to diversify they are starting to consider additional geographies,” says Andrew Ballantyne, JLL’s Head of Research for Australia and author of a new report exploring investment in the South Australian capital.
“This has seen Adelaide re-emerge on the investment landscape not only for international groups, but also among large Australian institutional fund managers.”
There are a number of key factors driving offshore appetite. “Our data shows that Adelaide’s CBD office market was the second most liquid out of the other CBD markets between 2000 and 2016 and, as we know, one of the main considerations for investors is the perceived level of liquidity in a market.”
Adelaide’s position as a defensive market serves as a further attraction for domestic and offshore capital.
“Across the country, we’re seeing risk averse investors constructing real estate portfolios with exposure to defensive markets – and this is likely to continue, particularly as wider economic volatility remains,” explains Ballantyne. “Compared to other similar markets, Adelaide is what we call a ‘low beta’ CBD office market, meaning the acquisition of a modern well-leased asset in Adelaide can be viewed as a defensive investment. The volatility of office market returns in Adelaide has also been comparable to Sydney and Melbourne over the past 10 years.”
According to the JLL report, the diversity of Adelaide’s tenant market is an important factor in its appeal to offshore investors. Adelaide’s occupier profile is the most diverse out of the CBD office markets and, while the top four industry sectors by tenant type in the CBD were public administration, professional services, finance and insurance, and information services, different industries are now contributing to growth.
Rick Warner, JLL’s Strategic Research Manager for South Australia, , believes that Defence, Education and Technology are the emerging growth sectors to watch out for.
“South Australia’s position as the Defence capital of Australia has stimulated the relocation of Babcock International and the expansion of Boeing. The growth of the technology sector and the acceptance that Adelaide is a vibrant tech start-up hub – with approximately 750 technology firms employing between 1 and 19 people in South Australia – has also supported the growth of co-working spaces in Adelaide.
“Meanwhile, with its top-rated education facilities, international student numbers in South Australia have increased by 65.7 percent since 2006 while affordability to study in Adelaide compared to other Australian capital cities provides a further draw to students.”