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2ND HALF 2007 AUCKLAND CBD OFFICE REPORT

Vacancy Rate Returns to Record Low

Auckland’s Central Business District (CBD) office vacancy rate fell by 1.4 percentage points to 9.5% in the six months to July 2007, equalling its record low previously recorded in July 2006, according to the mid-year survey conducted by Bayleys Research and TelferYoung Research. The latest result is down from the 10.9% recorded six months ago in January 2007. This decrease is reflected across the majority of the nine individual precincts monitored by Bayleys Research within the Auckland CBD, with eight having recorded a decrease or similar vacancy rate when compared to six months ago.

Prime (Premium and A-Grade) office space, which accounts for approximately 30% of the total amount of office space in the CBD, continues to lead the market with a vacancy rate below 4%. While the amount of Premium office space available for lease is virtually non-existent, a few options within the A-Grade sector have arisen over recent months. New A-Grade office stock has been brought to market due to the recently completed MasterCard House in the Viaduct Precinct with a small portion of space still available. This, in tandem with some availability at 32 Market Place and in the Gen-i building at the time of the survey, has resulted in a slight increase in the amount of vacant space in the A-Grade sector compared to six months ago.

However, while there is a small portion of high quality space available, the strong tenant enquiry for such space driven by the preference for quality is likely to result in a majority of it being leased quickly. Tenants looking for high quality, large floor plates, especially where contiguous floor levels are required, will need to search well in advance of their current lease expiring. Early discussions of possible options with leasing advisors and existing landlords is required to see if any currently underutilised space can be procured or new space developed and completed in time.

The secondary sector (B and C-Grade) of the Auckland CBD office market continues to play a dominant role in the performance of the overall market and is the major reason for the decrease in the overall vacancy rate this survey. The vacancy rate for the secondary market has fallen to just under 12%, down from 14% recorded at the beginning of the year. This is a result of continuing good leasing activity and a number of refurbishments taking place, which has temporarily decreased the amount of net lettable area.

The secondary sector in the Midtown Precinct has experienced some significant changes with approximately 3,000m² of vacant space taken out of the survey due to refurbishment work on various floors of the 280 Centre at 280 Queen Street. However, the vacancy rate has also decreased in this precinct due to approximately 4,000m² of space at 360 Queen Street being leased by the Auckland City Council.

Refurbishment of Union House in the Britomart Precinct continues with just over 2,000m² of space being refurbished. While only representing approximately 1% of the total net lettable area in the CBD, the limited amount of available space in the Britomart Precinct due to the extensive refurbishment and restoration programme being undertaken has meant that the vacancy rate has now dropped to below 2%.

There are other pockets of refurbishment in B and C-Grade office space occurring in the precincts monitored in the Auckland CBD by Bayleys Research. As a result of the flight to quality and the slowdown in the uptake of secondary space by the education sector - Auckland CBD’s largest tenant classification - landlords are realising that in order to attract and retain tenants they need to provide better quality accommodation, whether as a general upgrade of their investment or as a leasing incentive.