Hopefully Olympic Dam gets signed off by the board at the end of the year despite recent doubts. A 75,000sqm office space demand could be an over the top expectation but I wouldn't be complaining if that was the amount needed.
Adelaide developers bank on mining boom
by: Verity Edwards
June 23, 2012 12:00AM
SOUTH Australian developers are hoping Adelaide's CBD will soon profit from the projected mining boom and follow in the footsteps of Perth's increasingly tight office market.
With an office space vacancy of about 7.7 per cent, property analysts say Adelaide's market has reached a balance of demand and supply.
"Overall the health of the CBD market is quite strong, but we haven't seen substantial supply come on stream yet," Property Council of SA executive director Nathan Paine said.
"We've got that supply demand balance right for what we should be, but for longer-term growth we'd want to see demand grow."
Several key developments, including a new Australian tax office building on Franklin Street, providing almost 34,000sq m of office space, a second building, of 20,000sq m, on Franklin Street and a new Bendigo and Adelaide Bank building on Grenfell Street, will be completed either later this year or early next year. Early this year, South Australian Police moved into a new 13,500sq m building.
With each of the organisations having moved or preparing to, Mr Paine said there would be openings in the market.
The South Australian commercial property industry is pinning its future growth expectations squarely on the shoulders of BHP Billiton, optimistic that its planned Olympic Dam expansion will create a need for office space for the mining giant and related engineering industries.
A Jones Lang LaSalle white paper on the impact the Olympic Dam expansion would have on Adelaide CBD office space found demand would increase by 35 per cent over the first 12 years of the project.
The white paper, which referred to BHP's environmental impact statement, notes the company alone would need an additional 75,000sq m of office space. That could include BHP bringing its uranium headquarters to Adelaide, but does not include associated engineering company needs.
BHP has until the end of the year to make a commitment to the expansion and chief executive Marius Kloppers has warned that global economic uncertainty could have an impact on plans.
Mr Paine said whether BHP Billiton went ahead with its Olympic Dam expansion plans or not, he hoped growth in the state's mining sector would still create demand in the office market.
"What we've seen so far is some of the engineering companies in particular bringing in staff from interstate," he said. "It's not just Olympic Dam, there's $8 billion worth of mining development going on. They're tooling up for these projects."
He said the Olympic Dam projections could see new buildings being developed, and a further tightening of the vacancy rate from associated companies.
Colliers International chief executive James Young said there was room for growth in Adelaide, particularly with the relaxation of height limits and available development sites.
But he said that, at the moment, there was little need for rapid expansion in the commercial market, because employment growth was steady and there would soon be several vacated sites needing backfilling. "A lot of people have been spooked that this additional office space (from the ATO, the police and the bank moves) will create too much space and there will be blood on the streets," Mr Young said. "But it will be more like a musical chairs situation."
He said with low vacancy rates, prime rents were at an all-time high, plateauing at about $550 per square metre gross.
Mr Young said that figure would average about $500 per square metre for the prime market in the city's core, and $450 in other parts of the CBD. Based on an estimated 3.5 per cent growth, Colliers conservatively anticipates prime rents will grow to about $590 within two years.
While those figures were quite low compared with $800 in Perth, where vacancies sit at about 2 per cent -- or $1000 per square metre in Sydney's core CBD -- he said Adelaide's rents could be compared with other city fringe sites.
"We'd be on par with Melbourne's Docklands, but not Collins Street," he said.
"We might be on par with something like Surry Hills, but not Pitt Street in Sydney."
And while the relaxation of height limits might encourage development, Mr Young said the positive impact would be felt more keenly in the residential apartment market, rather than prime office space. "Residential developers are only limited by their vision, their balance sheet and their clients," he said.