North Shore office vacancy lowest in a decade
North Shore’s office vacancy is at its lowest level since 2006.
The North Shore’s office sector performed strongly last year with total vacancy rates falling to 6.9 per cent - the lowest level since 2006, says the latest office vacancy survey by Bayleys Research.
“The reduction was driven by strong tenant uptake across the area’s two biggest office precincts, Takapuna and Albany,” says Ian Little, Manager Property Research Division for Bayleys.
“In Takapuna the vacancy rate fell from a 2015 total of 7.7 per cent to 6 per cent this year. In Albany vacancy fell by nearly 3.5 percentage points to 5.72 per cent - the lowest figure recorded since the inception of the Bayleys Research survey.
“Vacancy at the prime end of the market continued to tighten with A-grade vacancy now sitting at sub 5 per cent - the only time that a rate as low as this has been recorded since 2001. At that time A-grade inventory totalled just 35,200sq m - only 22.5 per cent of the current total.”
Little says that, while Takapuna and Albany have been the primary drivers of falling vacancy over the last 12 months, the performance of the North Shore office market overall, post the global financial crisis (GFC), has best been illustrated by trends within the Mairangi Bay precinct.
“This was an area which experienced rapid expansion within its office market between 2007 and 2010 as developments which, had begun immediately prior to the GFC, were completed. This spike in new supply combined with a softening economy resulted in vacancy reaching 23.5 per cent in 2009.
“Over subsequent years however, strengthening leasing conditions have seen the rate falling to just 4.3 per cent at the date of the latest survey.”
Little says the inventory of office space within some of the region’s leading precincts like Takapuna and Albany has become effectively capped as land values rise - reflecting the increasing demand for residential development within such areas.
“It is likely that future office expansion within these precincts will be limited to forming parts of Mixed Use schemes.”
The good news for North Shore’s office sector has continued this year with confirmation that Vodafone is to consolidate all its Auckland based staff within refurbished space at Takapuna’s Smales farm - exiting its Fanshawe St, Auckland CBD offices when its lease ends in 2017.
Smales Farm Business Park occupies a 10.8 hectare site currently housing 41,000sq m of commercial office and retail space.
Further expansion of the commercial offering at Smales Farm is underway through the development of the 12,250sq m B:Hive Building which is scheduled for completion mid next year. The building has been designed as a ‘future focussed building’ with flexible floor designs aimed at attracting a mix of corporates, small to medium enterprises (SMEs) and start-up company tenants.
In line with international trends the building will incorporate Flexispace which can be occupied under flexible licence agreements by between two and 100 people, allowing companies to expand or contract, depending upon work flow, without having to relocate.
At the present time Smales Farm has consent for up to 160,000sq m of commercial space, which, it is anticipated, will include a hotel along with additional office space. Future development of residential property on site is also planned.
Little says the vacancy in Takapuna has been trending down since reaching a GFC peak of 12.8 per cent in 2011.
“The latest figures show that central Takapuna retains its appeal as an office location with its retail and hospitality outlets, and the beach, making it an attractive area in which to work. The low office vacancy rates within the metropolitan centre are likely to persist for some time given that the total inventory is all but capped, due to the fact that the highest and best use for land is residential as opposed to commercial office.
“Land values in excess of $1000 per square metre make development for office use unviable unless building owners are able to achieve rents of about $350 per square metre - a significant lift on current average rates. New supply will therefore most likely be limited, over the next few years to be an element within Mixed Use developments or redevelopments.
“An example is the redevelopment of 1 Byron Avenue where the existing building had two office floors added above totally refurbished ground floor retail space.”
Little says that additional office development in Albany is also likely to be restricted with the emphasis for development in the area being primarily aimed at apartment projects.
“Once again therefore office development is likely to be limited to design-build schemes with little being introduced to the general leasing market unless there is an element of ‘speculative’ space built into the design. An example of this is the inclusion of approximately 1400sq m of space within Mitre 10’s new 7000sq m headquarters being constructed within the Orchard Business Park.”
Ian Little, Bayleys Research.