Big drop in city fringe office vacancies
Aerial view of the Auckland CBD with the city fringe suburb of College Hill in lower foreground. ‘College Hill recorded the lowest vacancy rate at just over 5 per cent - down from 7.6 per cent.’
The combination of a strengthening leasing market and some significant projects converting office buildings into residential complexes have resulted in a sharp fall in office vacancies across the Auckland City fringe business precincts, says Bayleys Research.
A new city fringe vacancy survey shows that overall office vacancy has fallen to 13.7 per cent down from 16.8 per cent in early 2014 and a peak of 16.9 per cent recorded in 2011 when the impact of the Global Financial Crisis and New Zealand’s recession was at its greatest.
Office vacancy decreased in four of the five city fringe precincts monitored by Bayleys Research: College Hill, Newmarket, Grafton and Newton. Only Parnell bucked the trend with its vacancy increasing marginally from 12.9 per cent to 13.1 per cent.
Ian Little, manager of Bayleys Research, says the improvement has been led, as in most areas, by an uptake of higher quality space.
A-grade vacancy which stood at 13.8 per cent a year ago has fallen to just below 7 per cent. The sharp decline has been brought about by a number of significant lettings to tenants such as Lottery NZ and BP New Zealand. Both organisations have taken space within the new Watercare Services’ building in Nuffield Street, Newmarket. The New Zealand Lotteries Commission moved from B-grade premises in Grafton while BP has relocated its head office from Wellington.
Little says a further sign of the positive impact which New Zealand’s strongly performing economy is having on the commercial property market is the decline in the vacancy rate of city fringe secondary grade property, albeit not to the same extent as A-grade premises.
The Bayleys Research2015 survey shows B-grade vacancy down by over 1.5 percentage points to 14 per cent and C grade vacancy falling by 2 percentage points to 20.1 per cent.
As anticipated, the high vacancy rates which have prevailed since 2011 have resulted in a significant lift in the number of residential conversion projects which are either underway or proposed, says Little.
Two of the most significant in the latest survey are located within the Newton precinct, at 8 Hereford Street and 15 Hopetoun Street, with developer Tawera Group converting the buildings into high quality apartments.
Both former anchor tenants at 8 Hereford Street, Telecom (now Spark) and Auckland Council have moved to new or refurbished buildings within the Auckland CBD and once conversion works are completed the property will comprise around 115 apartments. At 15 Hopetoun Street, the previous Baycorp House is being reconfigured into 91 apartments.
Aerial view of city fringe suburb of Newmarket in the foreground. ‘Newmarket precinct’s vacancy rate now sits at 14 per cent - down 3.7 percentage points over the last year’.
“These two schemes have resulted in the total office floor area of the fringe precincts falling by approximately 18,300 sq m which has clearly been a significant contributor to the decline in vacancy rates,” says Little
College Hill recorded the lowest vacancy rate at just over 5 per cent down from 7.6 per cewnt in 2014.
For the second consecutive survey, there is no A-grade vacancy within the precinct while the amount of B-grade space available shrank to 2720 sq m from 4100 sq m primarily due to lettings to United Chinese Press and Working Giant at 1 Beaumont Street and of vacant space at 13 Hargreaves Street which has been filled by a number of marketing firms.
Grafton, where vacancy has fallen from 18.9 per cent to 15.6 per cent, has experienced many of the trends evident across the fringe precincts, says Little.
Business expansion, refurbishment and residential conversion projects have all contributed to the decline. Orion Health, for example, has increased its presence in the precinct taking space at 160 Grafton Road, opposite its current headquarters.
The owners of 117 Khyber Pass, which was previously the home of the NZ Lotteries Commission, have embarked on a refurbishment programme while 10 Lion Place has been removed from the survey as it is being converted to apartment use. Formerly called Access House, the property is being rebranded “The Ivory, Epsom” which will comprise 84 one to three bedroom residences.
In Newton which has the highest vacancy rate within the fringe precincts, the occupancy rate has increased to over 80 per cent for the first time since the Global Financial Crisis. While still high at 19.2 per cent, the vacancy level is down on the 20.5 per cent recorded in 2014 and a massive 36.3 per cent in 2011.
Little says that, in addition, to the Tawera conversion projects, 127 Newton Road is undergoing refurbishment and the success of such upgrade schemes is evident at 4 Newton Road where four companies have moved in following its renovation over the last year.
“The leasing market has also been active over the last 12 months with, for example, PSA taking two floors at 155 New North Road and the number of vacant suites at 30 St Benedicts Street falling from four to just one.”
The Newmarket precinct’s vacancy rate now sits at 14 per cent - down 3.7 percentage points over the last year.
In addition to the successful leasing of the Watercare Services building, previously vacant space at 100, 111 and 123 Carlton Grove Road has also been absorbed and a building at 79 Carlton Road is undergoing an upgrade following the departure of the ANZ Bank.
Little says the city fringe market is showing similar trends and patterns to the Auckland CBD office market where Bayleys Research’s latest survey, released earlier this month, shows the overall CBD vacancy rate has declined from 11.4 per cent to 10.6 per cent over the past year. Vacancy within upper grade premises has declined sharply in both markets, with the CBD prime office vacancy standing at just 3.3 per cent and mostly comprising small pockets of space.
“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 to pull vacant space out of the market. Coupled with the fact that New Zealand’s economy is tipped to continue to grow throughout 2015, it is almost certain there will be further supply tightening across all grades of office property over the course of this year. This will put more upward pressure on rentals, particularly at the upper end of the market.”
Ian Little, manager of Bayleys Research; ‘It is almost certain there will be further supply tightening across all grades of office property over the course of this year’.