Auckland’s space race
Total Property - Issue 2 2017
The vacancy rate in Auckland’s office market has fallen to historic lows but developers are not standing still, with a number of significant new projects set to come online this year that will ease pressure in the market.
New business formation and expansion outpaced office development in Auckland again last year, resulting in a further reduction in vacancy rates, but the city’s crowded skyline points to a positive future for the commercial property sector.
Auckland continues to lead the way in construction growth, with the city accounting for the bulk of the $37 billion of building work being carried out in New Zealand over the next five years.
While non-residential construction nationally has softened in recent months, driven by an easing of building consent issuance in education and health sectors, albeit from high levels, there has been a further strengthening in the pipeline of commercial construction work.
The results of the latest Bayleys Research office vacancy survey, which covers a total of 1,761,025m² of office accommodation, has seen the availability of space falling in all major precincts in Auckland. In the CBD the overall vacancy rate has fallen to 6.25 percent a trend mirrored across the CBD fringe precincts where the latest figure stands at 10.1 percent.
Prime grade (Premium and A Grade space) vacancy in Auckland CBD has remained unchanged at 2.4 percent despite an increase in the total inventory of 28,654m², the biggest increase in new supply for six years. This increase is largely due to the completion of Fonterra’s new headquarters in Fanshawe Street and the BDO Centre at 151 Victoria Street West, now fully leased.
B Grade space still forms the largest sector of Auckland’s CBD market although the inventory has dropped to 517,704m² from 528,230m² a year ago as a result of refurbishments underway and redevelopment projects, predominantly to apartments. The B Grade vacancy rate is now 9.4 percent, the first time that it has been below 10 percent since 2009.
C Grade vacancy continues to fall, now at 8.6 percent from 12.5 percent, with a continuing trend of C Grade space also being removed for change of use. Empty CBD office accommodation is now at its lowest level since Bayleys Research began its CBD vacancy survey in 1992 and this is the first time overall vacancy has been below 7 percent.
High levels of business confidence and employment growth in the service sector have driven demand for office accommodation, but it is likely that CBD vacancy has reached a cyclical low as a substantial new development pipeline will begin to outpace demand.
More than 50,000m² of prime space will come on stream this year. This will include three new buildings in the Wynyard Quarter – the Datacom building (16,000m²), the Innovation 5a building (8,500m²) and Bayleys House (8,000m²) – plus 46 Sale Street (10,000m²). In addition Vodafone NZ will not be renewing the lease on its 14,000m² head office building on Fanshawe Street when it expires in April 2017 as it consolidates in Takapuna on the North Shore.
Most of these new premises have already been either fully or largely pre-let, or are likely to be by the time they are completed.
The introduction of new stock will ease the pressure not only on availability but also rents. There has been significant rental inflation over recent times with premium rentals rising by up to 25 percent over the last three years, as new office builds set higher benchmark rents.
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