The value versus quality dilemma is keeping the occupier market on its toes, while landlords are trying to balance rental expectations with ongoing requests for incentives say brokers at the coal face of the commercial and industrial leasing sectors.

The latest broker sentiment survey undertaken by Bayleys across its network showed weak to neutral leasing market conditions evident around the country, with tightened economic fundamentals affecting both occupiers and landlord decision-making.

Tenants are typically seeking better quality premises in more effective locations, with many clients looking for smaller more efficiently designed premises or wanting to reduce their total real estate footprint in response to the softer economy.

Bayleys brokers report that the most common challenge for tenants in the current market is the squeeze on rental budgets and lack of capital for expenditure, while seeking better premises, with both factors translating to delays in inking deals.

Meanwhile landlords are still coming to terms with the disconnect between rental expectations and elevated capital expenditure requirements.

Bayleys’ national head of occupier strategy and solutions, Steve Rendall says office leasing transactional activity has been slow of late, but there does appear to be a significant backlog of moves either planned or in progress.

“While the market remains fairly balanced with vacancy rates for premium and A-grade stock remaining relatively low, a lack of high value moves has increased motivation among many larger landlords who are under some pressure to deliver results to stakeholders.  

“Occupier demand has been inconsistent, with many businesses still grappling with returning people to the office. Some corporate occupiers have formal or informal mandates to have people back in the office for at least three days a week in an effort to return occupancy levels to a pre-COVID norm.”

Rendall says that at the same time, expectations around workplace look, feel and performance are putting existing office space under the microscope.

“Some floorplans and fitouts that have been workable over the past four years are looking less functionally effective in an environment where employers need to demonstrate commitment to better quality space and amenity to attract staff back to the office – and to justify a return to work mandate - and position their brand favourably for clients if public-facing.  

“This desire for improved working environments requires capital which generally, occupiers haven’t always factored sufficiently into budgets. This has fuelled interest in turn-key solutions funded by landlords – now being delivered over increasingly larger floorplates, in a way that has mirrored a trend in Australia – while other occupiers are seeing tangible value in re-using existing fitouts left by vacating tenants.”

In some commercial precincts, infrastructural advances are positively impacting the quality of space for lease. Rendall says the expected 2026 opening of Auckland’s City Rail Link (CRL) is revitalising activity in city’s mid-town area.

“The CRL’s completion/opening date is now within a foreseeable move window for occupants, and has resulted in increasing positivity in mid-town office space. Many landlords are looking to reposition services and amenities like lifts and lobbies to attract tenants who are turning their attention back to this precinct.

“We are generally pretty bullish on expected occupancy levels and investment returns across mid-town over the next 3 to 4 years, and expect occupiers to see a value-for-money opportunity arising.”

In the industrial leasing sector, Bayleys’ national director industrial and logistics, Scott Campbell says there’s plenty of inventory around the country so occupiers have a lot of choice.

“Vacancy rates vary significantly across precincts and regions, with the Wellington market currently seeing good uptake of space, and Christchurch effectively running its own race with very little vacancy across the city and fringe.

“We’re not seeing as much sub-lease space come to the market of late, which could point to occupiers banking on an economic upturn and opting to retain underutilised footprint as contingency.”

Industrial rents remain fairly flat, largely because of vacancy levels, although there will be some catchup value to be realised as rent reviews and lease expiries approach, says Campbell.

“Typical lease terms haven’t really altered, with 10-plus year terms fairly standard for prime space, and 6-8 years for older stock.”

Warehouse automation trends, advancing sustainability requirements, and lower construction costs will support new industrial development pipeline as occupiers seek to tick the quality box.

“Speculative development is now back on the table with major developers in the industrial sector planning ahead and securing sites,” says Campbell.

“These are well-specc’d new-generation builds, with high sustainability targets and typically fairly generic in nature providing flexibility for occupiers and future-proofing building appeal.

“Property for Industry is progressing its targeted 5-Green Star Springs Road development in East Tamaki, and planning a light industrial warehousing development in Spedding Road, northwest Auckland, James Kirkpatrick Group is quietly getting on with high-quality new industrial development, while Goodman is eyeing up the data centre space which is fast becoming a very desirable asset class.”

Trump liberation day put the brakes on decision-making for businesses around the world, with sector-wide pause until there was more clarity or certainty.

“Just what the eventual fallout will be for New Zealand remains to be seen, but it’s becoming increasingly apparent that we can’t second guess the Trump administration. Industrial business owners need to play the ball in front of them keeping one eye on geopolitical games if their operational model is influenced in any way by US dynamics.

“Strategies around required logistics and warehouse capacity are always informed by global supply chain and demand fundamentals, so New Zealand-based businesses will continue to weigh up market sentiment and global trends when making real estate decisions.”