For the first time in over a decade, the secondary-grade vacancy rate in the Adelaide CBD office market is sharper than the prime-grade vacancy rate. The trend has now persisted for three consecutive quarters. While it's commonly understood that prime vacancy is typically lower than secondary vacancy due to higher desirability from occupiers, recent Q2 2023 JLL Research data tells a different story. Secondary vacancy reached 14.2%, outpacing prime vacancy by 4.2 percentage points (ppts), which reached 18.4% - the highest prime vacancy rate recorded in the Adelaide CBD since 1993. In contrast, the secondary vacancy rate hit its lowest point since 2012. This outcome is essentially the result of a combination of occupiers seizing opportunities to move from lower-quality space to higher-quality B-grade space, as well as a trend of occupier centralisation from suburban office markets.

Figure 1: Vacancy Rate by Grade

Source: JLL Research

According to JLL Research data, office demand conditions in the Adelaide CBD are set to record a significant improvement over the short term. Net absorption in 2023 is forecast to total 30,000 sqm – the strongest annual reading in 15 years. Deloitte Access Economics (DAE) white-collar employment growth projections in the Adelaide CBD also portray an optimistic outlook, with approximately 1,400 additional workers expected to be added over the year (up 2.1%).

Looking ahead, the trend of secondary grade vacancy being lower than prime grade vacancy will persist in the short to medium term, mainly due to the expected increase in new prime grade office supply. The trend is then expected to diverge in the medium term, resulting in an incremental decrease in prime grade vacancy as ‘flight to quality’ remains a prominent factor and new supply is reabsorbed.