The Adelaide CBD office vacancy rate has dropped for the fifth consecutive period – but here are three reasons why it could rise sharply given risky proposed changes to land tax.
The latest Office Market Report reveals a drop from 14.2 to 12.8 per cent for the city, while Fringe vacancy has increased from 12.6 to 13.1 per cent in the six months to July 2019.
“The Adelaide CBD office market vacancy decreased over the past six months, mainly due to positive demand of 15,824sqm and withdrawals totalling 7,074sqm,” said Property Council SA Executive Director Daniel Gannon.
“While confidence levels are more than 20 points above South Australia’s historic average and office vacancy rates are trending downwards, Premier Steven Marshall’s risky proposed changes to land tax will cause significant head-winds over the horizon.”
Mr Gannon has cited three reasons as evidence that South Australia’s office vacancy rates could rise sharply, as below.
- The State Government’s $120m land tax aggregation Budget measure will take a sledgehammer to South Australia’s institutional investment market and development sector even before the Valuer-General’s statewide revaluation measures kick in.
- South Australia’s anti-competitive land tax regime, which at 3.7% for the top aggregated tier is a disincentive to invest or continue to invest in the state, and is 85% higher than in NSW and 65% higher than in Victoria.
- South Australia’s sluggish and lethargic population growth rate significantly trails the rest of the country, with Victoria growing by more people every 27 days than SA grows across an entire year.
“At a time when 26,070sqm of space is due to come online in the second half of 2019, followed by 17,786sqm in 2020 and 43,636sqm after that, risky tax changes are the last thing we need,” Mr Gannon said.
“Recent announcements in the space and defence industries along with an important City Deal for Adelaide should be the economic catalyst South Australia needs, driving vacancy rates down and stimulating the city’s core.
“However, instead of doubling down on these economic green shoots, the State Government is now caught up in a jellyfish of destructive land tax changes that could scare off investors and hurt superannuants and their nest eggs.
“This spells trouble for commercial landlords, whose surplus capital might have to fill Treasury coffers now rather than contribute to a building’s facelift and a general injection to Adelaide’s commercial market.”
Mr Gannon said the State Government could immediately pursue key reforms to maintain historic confidence levels, as below.
- Significantly amend or abolish its recent $120m land tax aggregation proposal to ensure a competitive outcome for investors and superannuants.
- Apply a handbrake to the Valuer-General’s statewide revaluation initiative, which under a modest 10% increase scenario would deliver an extra $75m every year in land tax revenue.
- Reduce land tax rates, spending and public sector inefficiencies to allow for policy reversals as listed above.
To view select Office Market Report data series, visit the Property Council’s Data Room