AUCKLAND OFFICE VACANCY RATES MASK GROWING SPACE TO LET

The latest Bayleys Research commercial office vacancy surveys covering the Auckland CBD, city fringe, Southern Corridor and North Shore markets have shown only moderate increases and, in the case of the CBD, a decrease in overall vacancy rates despite the worsening economic climate.

Vacancy levels range from 6.5% in the Southern Corridor to 10.35% on the North Shore. However, anecdotal evidence suggests an increasing number of office tenants are undergoing a consolidation of their business and are reducing staff levels and looking for opportunities to shrink the amount of office space they are committed to. For many, the lead-in time to their lease expiry is too long and other alternatives are being considered, including subleasing.

So, while the latest vacancy levels are still very healthy, they may be hiding an increasing amount of space already being made available to the market through a growing sub-lease market. To date, the marketing of this space is being conducted “off market” as organisations prefer to keep their level of retrenchment private for as long as possible. It is, therefore, impossible to quantify the additional amount of space which is actually available to the market over and above that which is currently physically vacant.

VACANCY OVERVIEW

Auckland CBD

Overall vacancy in Auckland’s central business district declined over 2008, according to Bayleys Research’s latest commercial office survey, which is a surprising result given the current state of the property market. Vacancy in the CBD is currently 8.8%, down from 9.6% in January 2008. This overall decrease would be a result of pent up demand for space early in 2008, which saw the uptake of new space that came online as well as newly refurbished space.

Precincts within the CBD which showed the largest decreases in vacancy were Britomart, which dropped by 4.8 percentage points to 11.4% and Quay Park where the vacancy rate is now less than 3%. Leasing activity in Britomart included Westpac moving into stage one of their newly appointed premises as part of Cooper and Co’s overall Britomart development. In Quay Park, the smallest of the CBD precincts, BNZ and GE moved into pre-committed space, completed by TCL Manson, adding 26,000m² of fully tenanted A-grade space to the survey. The Viaduct Harbour area continues to be popular with tenants, reflected in its vacancy rate of just over 4%.

 

 

City Fringe

Office vacancy in Auckland’s City Fringe has held steady over the last 12 months, showing resilience over a period of challenging economic conditions. The vacancy rate recorded for January 2009 is 8.1%, according to the latest Bayleys Research Office Vacancy Survey, just 0.1 percentage points higher than was recorded the same time last year.

On a precinct-by-precinct basis, vacancy results varied with Newton showing the lowest level at 3.3%, down 0.6 percentage points over the last 12 months. The precinct displaying the highest vacancy rate was Parnell with a 0.8 percentage point increase to 11.2%. Vacancy in the precinct has been affected by a significant increase in B-grade vacancy, which accounts for over half of the stock, along with 22.1% vacancy in Parnell’s D-grade space. Vacancy in A-grade space in the precinct is non-existent.

The big improver in the city fringe has been Grafton where the vacancy rate has fallen from 13% to 9%, while rates edged up in College Hill to 8.6% and in Newmarket to 7.6%.

 

 

Southern Corridor

The overall rate of vacancy in the Southern Corridor increased to 6.5%, according to the latest Bayleys Research office vacancy survey. This is an increase of two percentage points on the 2008 survey and is mainly the result of a big increase in the lowest quality space (C Grade). However, the vacancy rate in the Southern Corridor remains historically low and is primarily driven by tight vacancy in higher grades of space.

Vacancy in A grade office accommodation firmed further in 2008 to 2.0%. The decrease is due to the uptake of space in Goodman Property Trust’s Millennium Centre as well the regrading of another building, removing it from the stock of A grade space.

Furthermore, with the high proportion of A grade office accommodation in the Southern Corridor, currently 40%, and tenants strong appetite for quality space, we would expect this to help to protect overall vacancy in the precinct. The Southern Corridor remains popular with corporates, particularly those requiring large amounts of space, because of the large floor sizes if offers, its proximity to the motorway network and cheaper rentals and better carparking than similar space in the CBD.

 

 

North Shore

The North Shore has displayed what could be described as a more typical expectation of vacancy results over the last 12 months. The overall vacancy in the North Shore office market increased one percentage point throughout 2008 to a total rate of 11.3%, largely as a result of vacancy increases in the lower grades, while A-grade vacancy dropped slightly.

Larger increases in lower grade space aren’t surprising, as the North Shore office market has a large representation of smaller firms which contract quickly in adverse economic conditions. While the Takapuna vacancy rates have remained relatively stable an increase in vacancy was noted in Albany.