Auckland office space in short supply
Office space availability in Auckland’s CBD is hitting historic low levels.
The latest Research Report by Colliers International says less than 84,000 sq m of office space is available for lease in the Auckland CBD – the lowest level since Colliers’ records began in the mid 1990s.
Chris Dibble, the agency’s director of research and consulting, says leasing in Auckland has been strong for prime office space in premium and A-grade buildings but this has been eclipsed by activity in the secondary sector for B-grade and lower rated buildings.
“The lack of prime space, with vacancy at just 1.2 per cent, has left many tenants searching for space in lower grade buildings. This has seen secondary vacant space reduce to less than 77,500 sq m - another record low,” Dibble says.
The Colliers International’s Research Report, to be released on Friday, shows that availability of office and retail space in Auckland and Wellington’s central business districts is markedly different.
Office vacancy in Auckland reached a new record low of 5.8 per cent, while Wellington’s vacancy rate remained steady at just over 11 per cent. The opposite applied to the retail sector with vacancy increasing in Auckland to 3.9 per cent and decreasing in Wellington to 7.3 per cent.
Dibble says development activity has risen in Auckland, primarily in the Wynyard and Victoria Quarter precincts, and this will provide the occupier market with more options in the short term.
“A recent completed example is Mansons TCLM’s building on Victoria Street West housing NZME and Meredith Connell, in which there is 3100 sq m of office space still available to lease..”
The report says developments underway or scheduled for completion over the next five years in Auckland CBD are expected to contribute an additional 167,000 sq m of office space but much of the uncommitted space is being leased before completion.
Dibble says the long anticipated addition to the Auckland CBD high-rise tower skyline is Precinct Properties development for PwC.
“The 39,000 sq m of new premium office space within this building will mean a number of existing and new CBD office tenants will move to the tower in the renamed Commercial Bay precinct.
“The space left behind from those tenants will provide much needed leasing alternatives for new tenants into the CBD.
“The forecast rise in office space available will be met with a significant amount of pent-up demand - limiting the rise in office space that may eventually become available.”
Under current market conditions, Colliers forecasts overall vacancy to lift to 7.4 per cent by mid-2020. “This is well below the long-term average of 11.4 per cent providing limited breathing room for tenants looking to escape recent rampant rental rate rises as demand outweighs supply.”
On the retail front, Auckland’s vacancy had edged up to 3.9 per cent at the end of 2015 compared to 2.4 per cent in June 2015.
According to the Collier’s report, retail leasing activity in the CBD was busy with a range of new leases primarily in fashion and pharmacy sectors. However, it highlights that limited new development options has left vacancy flat over the last six months at 2.5 per cent.
Precinct Properties’ development on the lower levels of the new PwC Tower is expected to provide the opportunity for about 100 retailers across 18,000 sq m.
Further south, one of the newest additions to the mid-CBD will be The Warehouse which is opening a new store in The Atrium on Elliot.
Dibble says the mid-CBD precinct is expected to receive a lift in pedestrian flow in the future with the Convention Centre, City Rail Link Aotea station and the proposed Auckland NDG Centre.
“Outside of the Auckland CBD, demand for retail space has been mixed. Outer CBD Auckland retail vacancy increased to 4.2 per cent from 2.4 per cent between June and December last year.
“Kiwi Property, New Zealand’s largest listed property company, recently announced international clothing retailers H&M and Zara will occupy space at Sylvia Park. This indicates a noteworthy appetite for suburban retail, but only in the right locations. This is exemplified by the Auckland Shopping Centre vacancy which increased slightly to 1.3 per cent in December 2015, primarily due to central Auckland City vacancies.
“Demand for space in the suburban shopping centres remains high, especially out west. One key example is Stride Property’s recently completed and fully leased NorthWest Shopping Centre at Westgate. Further development has been announced by Stride.
“Pent-up demand for West Auckland retail space is showcased by the neighbouring large format retail centre development known as Zone 7 purchased by Kiwi Income in late 2015 for $82.5 million. The 25,500 sq m development will house a number of well-known national brands like Harvey Norman, Briscoes, Rebel Sport, Freedom and Warehouse Stationery.”
Chris Dibble, Colliers International.