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SOUTHERN CORRIDOR REPORT ANNUAL 2007

STEADY LEASING CAUSES VACANCY RATE DECREASE

The Southern Corridor overall office vacancy rate now sits just below 8%, according to the latest survey undertaken by Bayleys Research. This is down from the 10% recorded 12 months earlier in January 2006 and is a reflection of the steady leasing activity apparent in the area.

The Southern Corridor precinct extends along Great South Road from Manukau Road to the Penrose Interchange. The southern end of the precinct has experienced an influx of development over the last few years with large, modern office park developments now typifying the area. The northern end of the precinct consists of a number of smaller-scale office buildings built in the 1970’s and 1980’s and is largely influenced by its proximity to the Newmarket commercial and retail centre.

A significant proportion of the uptake in office space in the Southern Corridor over the last 12 months has been of A-Grade space with over 5,000m² being leased. This result reflects the continued preference for high quality office accommodation which has meant that A-Grade vacancy is down to around 9%. This fall in A-Grade vacancy is the main factor behind the decrease in the overall vacancy rate for the Southern Corridor precinct in January 2007.

The fall in vacancy levels is in contrast to results 12 months ago. The development of a large number of modern office buildings in 2005 pushed the A-Grade office vacancy rate up to 16% or just under 12,000m² of vacant office space in January 2006. The latest results show the market is now starting to absorb these new developments.

Many other surveys undertaken by Bayleys Research around the country have noted a similarly continued preference for quality office accommodation. Many of the new office buildings that have been built in the precinct over recent years are characteristic of the high standard of office accommodation now sought, generally offering large floor plates, proximity to amenities, adequate carparking and quick and easy access to the motorways and main arterial routes. The Ascot Park office development near the Greenlane motorway entrance will increase the stock of high quality office accommodation in the Southern Corridor precinct, with four buildings of around 2,000m² each expected to be completed by July 2007.

While there have been a small number of tenants upgrading to higher quality buildings within the precinct, the main uptake of space has come from tenants relocating to the Southern Corridor from other parts of Auckland. This has helped to keep secondary (B and C-grade) office occupancy levels high, although any further tenants vacating from C-Grade office accommodation, as is apparent in other Bayleys Research office surveys, could result in a slight increase in the overall vacancy rate for the Southern Corridor in the future.

A-Grade space is now dominating the Southern Corridor with almost half the office space inventory at this grade. This is in contrast to the other main office precincts around Auckland where A-Grade space makes up less than 30% of the total floor area. Consequently, tenants are often able to secure competitive rents in A-Grade space. Landlords of lower grade space will need to recognise this and possibly look to reposition their building through renovation or redevelopment. Previous strategies of subdividing floors into serviced offices are proving less effective in the current economic environment.