The amount of empty business accommodation within Auckland’ s CBD and central city fringe office precincts continues to fall, led by a significant uptake of higher quality space.
The latest Bayleys Research CBD office survey has found a fifth consecutive annual reduction in the overall vacancy rate, down to 10.6% from 11.4% in January last year. The drop in the city fringe vacancy was more pronounced from 16.8% a year ago to 13.7%, on the back of a strengthening leasing market and some significant residential conversion projects. Vacancy decreased in four of the five city fringe precincts monitored by Bayleys Research: College Hill, Grafton, Newton and Newmarket. Only Parnell bucked the trend with its vacancy increasing marginally from 12.9% to 13.1%.
Bayleys Research manager Ian Little says the economic recovery has fuelled new business formation, expansion and relocation with the amount of office space occupied by businesses in the CBD increasing by nearly 200,000 sqm between early 2010 and this year. “The current CBD vacancy rate is now at its lowest level since early 2009, before the impact of the GFC had taken full effect, when it sat at just below 10%.”
The latest survey shows vacancy within the prime end of the CBD market - premium and A grade space - to be all but non existent at just 3.3%, compared with 4.4% in 2009, with the vast majority of it comprising small areas on part floors, Little says. It’s a similar story at the top end of the city fringe market where A grade vacancy which stood at 13.8% a year ago has fallen to just below 7%. The sharp decline has been brought about by a number of significant lettings to tenants such as Lottery NZ and BP New Zealand which have taken space within the new Watercare Services building in Nuffield Street, Newmarket.
Vacancy within B and C grade CBD space increased to a combined 15.2% from 14.3% a year ago. “This reflects the preference for higher grade space with a number of companies having ‘traded up’ in an improved economic environment,” says Little. “There has also been a small decline within education sector occupation, which has an impact on lower grade vacancy figures given most space occupied by the sector is located within B and C grade premises.”
The Bayleys Research 2015 city from survey shows a divergence from the CBD for lower grade space, with B grade vacancy down by over 1.5 percentage points to 14% and C grade vacancy falling by 2 percentage points to 20.1%. Little says residential conversion projects of older buildings are contributing to this. Two of the most significant in the latest
survey are at 8 Hereford Street and 15 Hopetoun Street, in Newton which have been purchased Tawera Group. They are to be converted into high quality apartments, taking 18,300 sq m of former office space out of the market.
Vacancy fell within eight of the CBD’s 11 precincts in Bayleys Research’s latest survey, with the largest decline recorded in Quay Park where a raft of new lettings has pushed vacancy down from 15.1% in January 2014 to 4.9% this year. The Britomart precinct is fully occupied and has the CBD’s lowest vacancy. College Hill recorded the lowest vacancy rate in the city fringe at just over 5%. down from 7.6% in 2014 Given the continued strong performance of both the national and Auckland economies, the pressure on available office space is only going to continue over the year ahead as businesses remain in expansion mode, says Little.
“With the next wave of development still in its formative stage, the total office inventory will not expand significantly in the short term,” says Little. “In fact further residential conversion activity is likely which will pull vacant space out of the market. In the current climate companies must plan well ahead if they forsee a requirement for additional or new space as they will be entering an extremely competitive market. There is already evidence of significant upward pressure on rentals which will continue until the development pipeline increases significantly.”