Investment Rating - The report indicates that economic rents for A-grade office towers in Adelaide CBD are currently above forecast levels, suggesting a constrained development feasibility and a thin office supply pipeline in the coming years [1][11][47]. Core Insights - Economic rents have surged by 93% since Q1 2021, driven by rising costs and market pressures, leading to a thin supply pipeline in Adelaide CBD, which is expected to support strong rent growth in the future [3][7][17]. - Current economic rents are estimated at $1,150/sqm, while forecast rents are at $900/sqm, indicating a 27% gap that highlights the challenges in achieving financial feasibility for new developments [4][5][6][10][18]. - The development pipeline has thinned significantly, with no new supply expected in 2027, and new developments may not be feasible until around 2030 [11][12][47][74]. Summary by Sections Economic Rents - Economic rents in Adelaide CBD are currently at $1,150/sqm, a 93% increase since Q1 2021, required for new high A-grade office tower feasibility [4][7][13]. - The gap between current economic rents and forecast rents is 27%, indicating significant challenges for new developments [6][10][18]. Development Pipeline - The development pipeline is expected to remain subdued, with new supply additions projected to fall to a 30-year low in 2025 [11][47]. - No new office developments are anticipated to be completed in 2027 or 2029, with the next significant completion expected in 2028 [49][55]. Market Dynamics - Limited new supply is expected to drive stronger rental performance, with gross effective rents for high A-grade offices forecasted to grow at an average rate of 4.9% p.a. from Q4 2025 to Q4 2030 [61][62]. - The report suggests that tenant mobility may slow, leading to increased demand for existing high A-grade stock and a shift in bargaining power towards landlords [60][66].

Investment Rating - The report indicates a significant gap between economic rents and forecast rents, suggesting a constrained development environment in the Melbourne CBD [6][10][16]. Core Insights - The development pipeline is slowing due to rising economic rents and construction costs, leading to a forecast of strong rental growth in the future [3][8]. - Economic rents for premium office towers in Melbourne CBD are projected to be $1,348/sqm by Q4 2025, a 135% increase since Q1 2021 [7][15]. - Forecast rents are expected to reach $951/sqm by Q4 2028, assuming a 4% annual growth rate [5][15]. - The gap between economic rents and forecast rents is currently 42%, indicating challenges in achieving financial feasibility for new developments [6][10][16]. Summary by Sections Economic Rent and Forecast Rent - Economic rents have risen sharply, with a current estimate of $1,348/sqm in Q4 2025, compared to forecast rents of $951/sqm in Q4 2028 [5][7][15]. - The difference between economic and forecast rents highlights the feasibility challenges for new developments, with economic rents being 60% above current premium rents [16][23]. Development Pipeline - The development pipeline has thinned significantly, with new office supply in Melbourne CBD forecasted to average around 56,400sqm per year over the next five years, which is only 42% of the average seen over the last twenty years [22][17]. - Post-2026, there is very little expected new supply, with only one premium building projected to be completed by 2029-30 [23][27]. Market Dynamics - Higher construction costs, elevated interest rates, and a softening in yields are driving economic rents up, while subdued leasing demand has led to increased incentives for tenants [8][61]. - Economic rents are projected to fall to around $1,200 by late 2028, but will remain above forecast rents until Q3 2030 [34][36]. - Certain precincts within Melbourne CBD, particularly the Eastern Core, may see developments become viable sooner than others due to differing market conditions [12][37].