New development creates opportunities
Commercial office leasing markets across Auckland have been extremely active over the last year. A strong performing economy has driven new business formation and expansion, increasing demand for space.
Vacancy rates have been pushed to multi-year lows eliciting a significant supply response. This will alleviate the extreme shortage of space at the upper end of the quality scale which has been apparent over recent years and widen the range of options available to tenants as larger players move to new space upon completion of current projects.
Development activity peaks
With vacancy rates having fallen to record low levels over recent years a significant supply response has clearly been required. The development sector has responded with a number of major projects having been completed over the last 18 -24 months and a number of other significant projects underway.
New development activity has been concentrated to the north and west of the city as the CBD continues its longer term migration towards the waterfront. Land availability has been the principle driver with the Wynyard quarter undergoing a major transformation.
The completion of Bayleys House, Datacom House and 12 Madden Street within the Innovation precinct have, over the last 12 months, added to an inventory which has grown rapidly over recent years. The total floor area currently sits at approximately 100,000m2 up from just 27,000m2 in late 2011.
The largest single development is Commercial Bay at Downtown with completion set for 2019 will add a further 39,000m2 of office space to the city’s inventory.
The supply pipeline will ease pressure on the leasing market providing a wider range of options for companies seeking to expand or consolidate from a number of locations to just one. Pressure on the market has been particularly acute at the premium end of the quality spectrum with organisations having had to commission buildings for their own purposes over recent years.
Movement of tenants will see an increasing amount of B-grade space being released to the market. While there will be demand for well-located floor space within this grade there will no doubt be an increase in vacancy rates. This will however provide further opportunities for recycling of buildings to alternative uses such as commercial accommodation or apartments which will assist in bridging the significant supply shortages which the city suffers from in these sectors.
Conversion to residential sees office supply consolidating
Auckland’s housing shortage has had a significant impact on the city fringe office market, a result of the on-going removal of older C and D-grade office space for conversion to apartments and other uses. This has led to a reduction in vacancy rates within the secondary sector of the market and improved the overall quality of city fringe office stock.
Conversion to residential use has been particularly apparent within Grafton and Newton. It is becoming apparent that future office development will increasingly be concentrated within Parnell and, in particular Newmarket.
Higher levels of development activity are helping to boost both Parnell’s and Newmarket’s reputations as leading business centres. New development activity either recently completed or underway will see the total floorspace within the precincts, increasing by around 27,000m2 of new office space either under construction or planned across both centres. The larger projects include 96 St Georges Bay Road Parnell - a 4 level 10,000m2 and Mansons TCLM development due for completion in early 2018. Mercury House at 33 Broadway Newmarket - a 6 level 13,000m2 development due for completion in early 2019 has attracted anchor tenants and Mercury Energy and Tegal Foods on long term leases.
The North Shore
Vacancy rates have been trending down within the North Shore’s office precincts but, like many of the city fringe precincts competition for land from residential use is limiting development opportunities.
In Takapuna development activity is concentrated within the Smales Farm Business Park with the B:HIVE building being the latest addition. Major refurbishment within the Vodafone building is now all but complete.
Albany has also seen new office development with the Mitre 10 headquarters having been completed.
Activity in other North Shore office markets includes a further 8,600m2 of space added in Rosedale over the last 18 months with the construction of Triton Office Park at 34 Triton Drive and development at 14-22 Triton Drive. Rosedale’s office market is now a similar size to that of Mairangi Bay and Akoranga/Northcote.
The results of Bayleys Research’s midyear sentiment survey point towards further growth within rental values over the course of the next 12 months. A change of government frequently causes uncertainty within markets and this was illustrated by a slowing of activity leading up to the election. The longer term prognosis for Auckland’s commercial office market, however, remains positive. A number of the Labour led coalition policies will be stimulatory thereby driving further economic growth.
Auckland will continue to be the engine room of the nation’s economic growth driving demand for office space from start-up companies to the country’s largest corporates. The growth of the co-working sector will cater to start-up companies seeking flexible workspace on a smaller scale while established corporate occupiers will continue to seek efficiencies through agglomeration within a single property with a growing focus on sustainability.
Bayleys Commercial Sentiment Survey
Sentiment Points Towards Rental Growth
The results of Bayleys Research’s mid year sentiment survey points towards further rental growth within the Auckland office market over the course of 2018.
In total, just under 54% of respondents believed that rentals would rise over the year ahead versus just 10% who believed rentals would fall.
Of those believing rentals would rise, 42% projected growth of 55 or over while the balance expected rentals to rise by up to 5%.
Less than 0.5% of respondents expected rents to fall by more than 5%.
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