A significant shift in commercial property ownership is reaching an unprecedented high with owner-occupier demand across Adelaide.
In December last year, InDaily reported: “More businesses are looking to establish themselves in properties they own rather than rent, driving an uptick in commercial property sales” with a growing number seeking spaces across metro Adelaide, especially the CBD.
Driven by the rising cost of debt, and the business advantages of building equity through property ownership, this trend is likely to hold notable repercussions on the commercial property sector.
Colliers South Australia notes that even though borrowing money is more expensive, many businesses find that owning their property and building equity is a better financial strategy than renting. This has resulted in more businesses trying to buy their own premises.
What does this mean for commercial property sales
According to the article, the number of vacant possession (VP) sales has reached a peak of 65 per cent of total commercial property sales in Adelaide. This is a massive increase from the 53.5 per cent total recorded in October 2023, exhibiting the surge in growth that is expected to continue throughout 2025.
In the Adelaide CBD, this number is even more inflated, reaching a high of 72 per cent. While the number of business operations residing in the Adelaide CBD lends itself to a potentially larger commercial property market, the high percentage demonstrates the rise in owner-occupiers.
We expect market conditions for vacant possession properties to favour owner occupiers through the first half of 2025. Investors find it hard to compete with owner occupiers, who can generally pay higher prices as they don’t have to factor in downtime and leasing costs.
Let’s break down the cause of this change, and what this may mean for investors:
Economic changes
Rising interest rates increase borrowing costs for commercial property, and this is pushing owners to buy properties for their own use rather than renting, as it’s becoming more financially beneficial to build equity. If interest rates keep rising, this trend of owner-occupancy is likely to continue.
Infrastructure and new developments
Commercial property trends are often impacted by the decisions of the government, particularly in regards to their infrastructure and residential development projects.
One such change was the compulsory acquisition of properties located along South Road, motivated by the South Australian government’s desire to free land for future projects.
The displacement of many businesses has added to the owner-occupier demand in the commercial and industrial real estate market.
This is just one example, however, if you’re curious to learn more about the impact of the current market on your commercial property needs, Broadway Property can provide valuable insights for both owners and renters.