Industrial assets in Adelaide continue to be seen as a secure investment option due to persistent demand for space, according to the latest research from Knight Frank.

The Australian Industrial Review Q1 2023 found that despite some economic and financial uncertainty, ongoing demand for industrial space from both tenants and owner-occupiers remained strong in Adelaide over the first quarter.

“As a result we have continued to see properties trading, new developments progressing and rental growth continuing to materialise,” said Knight Frank Head of Industrial Logistics in SA David Ludlow.

“All of this means that industrial assets in Adelaide are still seen as a secure investment option, providing value for money with upside growth potential.

“While yields have moved out, it is due to the fundamental issue of the cost of debt, and not weaknesses in the market itself.

“As clarity begins to return to financial markets and interest rates near their cyclical peak, the South Australian industrial market remains robust, with low vacancy rates and projected rental growth, as well as rises in land values.”

The Knight Frank research found persistent increases in construction costs and supply chain challenges have hindered the projected supply of industrial assets, leading to a supply-demand gap that has driven up rental growth rates for existing stock.

In Adelaide average prime net face rents increased by 2.56 per cent over Q1 2023 and 7.29 per cent over the six months to April 2023.

This compares to Brisbane, which saw an 8.6 per cent increase over Q1 2023, followed by Sydney (8.2 per cent), Perth (2.5 per cent) and Melbourne (1.5 per cent).

Additionally, average incentive rates have remained stable at seven per cent during the quarter, the lowest they have been in 10 years, highlighting the strong ongoing demand for quality assets.

Knight Frank Partner, Research & Consulting Tony McGough said occupiers remained cautious over Q1 2023, with a growing preference for shorter leases, particularly among institutional tenants who have been more inclined to consider sub seven-year leases in the last six months.

“Industrial asset vacancies above 5000 square metres have slightly grown from 493,097 square metres to 532,143 square metres over the last quarter, but with less than 200,000 square metres of new developments planned up to 2025 supply remains under control.”

The Knight Frank research found land values for both small (2,000sq m – 5000sq m) and medium (1-5ha) sized allotments increased over Q1 2023.

There was more impactful growth occurring among smaller allotments, particularly within the Outer and Inner North and Inner West precincts, while medium allotments only saw growth in the Outer North and Inner West.

“The Outer North offers the most accessible and cost-effective land, as well as being attractive to developers due to improved accessibility resulting from the north/south connector,” said Mr Ludlow.

“As a result it is likely that these precincts will continue to experience an increase in investment and development activity in the coming years.”

Investment sales activity for assets in Adelaide above $5 million was $133.63 million over Q1 2023.

Yields continued to move out with prime yields averaging six per cent and secondary 6.95 per cent.

“This is due to ongoing interest rate rises and the pricing of debt rather than an indicator of the Adelaide market, which remains fundamentally stable,“ said Dr McGough.

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