Written by Stefan Kostarelis
A paper released last month by JLL has concluded that Adelaide has re-emerged on the investment landscape, particularly for cross-border investors and large Australian institutional fund managers.
The paper, entitled “Has Adelaide re-emerged on the investment landscape?” asserts that while the first wave of capital entering Australia was concentrated in Sydney and Melbourne, cross-border investors have increasingly looked to other capital cities to diversify their real estate portfolios.
In order to conclude that Adelaide has re-emerged as a viable investment option, JLL examined Adelaide’s office market and growth sectors.
According to JLL, one of the main considerations for real estate investment is the perceived liquidity in a market. Using its proprietary Liquidity Index, JLL found that between 2000 and 2016, Adelaide had the second most liquid CBD office market in Australia.
JLL also recorded an improvement in capital values since the cyclical low that was identified in the fourth quarter of 2009. Since then, Adelaide has recorded a capital growth of +63%. While it isn’t quite the blistering increase measured in the Melbourne (+105%) and Sydney (+95%) CBDs, it is a solid return and adds to Adelaide’s reputation as a “safe bet” for investors.
Risk adverse investors should also take note of the defensive nature of investment in Adelaide. In the report, JLL classified Adelaide as a “low beta” market, meaning that the volatility of returns is lower than most Australian CBD markets.
Andrew Ballantyne, JLL’s Head of Research for Australia and co-author of the report said:
“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.”
JLL South Australia (SA) managing director Jamie Guerra, told The Advertiser that Adelaide offers cyclical opportunity, as the prime grade yield spread between Adelaide and the other CBD office markets is wider than historical benchmarks.
“The wider than average spread highlights the attractiveness of asset pricing in Adelaide relative to Sydney and Melbourne and has started to stimulate new investment inquiry in the Adelaide CBD office market,” he said.
The report also identifies that Adelaide has a more diverse tenant base than other CBD office markets meaning that investors needn’t rely on one industry sector for growth.
Examining at individual sectors, JLL concluded that Defense, Education and Technology are the biggest growth sectors in the SA market.
With a $50 billion submarine contract expecting to create 3,000 new jobs, Babcock shifting from Brisbane to Adelaide and Boeing looking to fill 250 high-skilled roles, Adelaide’s defence sector is looking particularly healthy.
In Education, the number of international students in SA increased by 7.8% in 2016, as Adelaide becomes an increasingly attractive location to study. Along with highly rated schools, Adelaide also boasts great affordability and livability.
The report points out that Adelaide was recently ranked as the fifth best city in the world to live in and that projects such as the Rundle Mall Master Plan, Victoria Square upgrade and CBD tram extension will further improve life in the city.
Meanwhile, in the Technology sector, the report noted that SA has over 2,000 companies in the computer system design and related services industry sub-sector, estimating that 750 of these companies employ between 1 and 19 people.
JLL is a Fortune 500 investment management company that specialises in real estate. At the end of 2016, JLL had nearly 300 corporate offices in over 80 countries and a workforce of more than 77,000 worldwide. As of December 31st, JLL has $60.1 billion of real estate under asset management.