‘Flight to quality continues’: Frome St office building sold

Broker Colliers said high-net-worth investors are “aggressively” competing for high-quality CBD office space.

Aug 07, 2023, updated Aug 07, 2023
99 Frome Street. Photo: Colliers.

99 Frome Street. Photo: Colliers.

A three-storey office building on Frome Street has sold for $13 million following a “highly competitive campaign” for the East End site.

99 Frome Street was sold amid what broker Colliers described as a “flight to quality” for Adelaide CBD office space.

Brought to the market for the first time since construction, the 3,432sqm three-storey office building with 56 basement car parks attracted strong interest from a mixture of funds, syndicates and private high-net-worth investors.

The identity of the final buyer was undisclosed, but Colliers said it was “a local high-net-worth private investor”.

“It was a highly competitive campaign with over 85 enquiries, 12 inspections and six offers, clearly indicating a strong appetite for opportunities in the sub $20 million sector, with value-add potential,” Colliers national director Alistair Mackie said.

“As the flight to quality continues for office space in Adelaide’s CBD, vacancy rates keep tightening for high-quality A-grade offices, with 78 per cent of the deals being attributed to businesses expanding or upgrading. A trend that is expected to continue during the second half of 2023.”

Mackie added that investors were looking to reposition older generation office buildings “that appeal to the broader market while offering the genuine potential to create added value for hands-on and sophisticated investors.”

While investor sentiment remains soft due to elevated inflation and a tougher economic environment, Colliers manager of investment services Rhys Newman said there remained opportunities for divestments.

“General investor sentiment at an institutional level has dampened due to rising cost of debt and elevated inflation, despite improved leasing activity,” he said.

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“However, a significant amount of investment capital in the market is looking to be placed.”

Newman said the strong recovery of Adelaide’s office market has seen it pivot towards assets with “a narrative to create value”, as opposed to pure passive investment.

“We have recently seen more private high net worth investors competing more aggressively in the current market and benefitting from the strong economic fundamentals, underpinning the demand for commercial office in the resilient South Australian market,” Newman said.

99 Frome St is currently 79 per cent occupied and houses tenants including O’Loughlin’s Lawyers and ElectraNet.

“Once fully occupied, the asset is estimated to generate an annual income stream of $1,152,217,” Newman said.

“The property will enjoy the increased activity and demand through the eastern precinct and is well located to capitalise on the overflow of tenant requirements.”

The sale announcement follows the release of a new Property Council report detailing a rise in demand for office space in Adelaide alongside an increase in vacancy from 16.1 per cent to 17 per cent.

Brisbane, Perth and Canberra also all saw demand for office space rise, with national vacancy rates increasing due to an uptick in new office supply according to the Property Council’s data.

“Notably, the results show Premium and A Grade stock remains in high demand, reinforcing business’ desire to provide attractive and enjoyable workspaces for their people,” Property Council chief executive Mike Zorbas said.

“These organisations recognise that maintaining a physical office presence in our cities is vital for conducting business effectively.

“There have been big advances in the inclusiveness of our workplaces through flexibility in ways of working over the past decade, but we also need the balance of governments in leaning in and supporting the vibrancy of our CBDs.”

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