Office rent rises and less space for workers

5:00 AM Saturday May 23, 2015 Colin Taylor

Auckland CBD Grade-A office rents are predicted to rise.

JLL researchers are forecasting a further 9 per cent increase in average net office rents for Grade A space in Auckland CBD by this end of this year with reduced vacancy also driving workplace changes throughout New Zealand.

Mark Grant, the agency’s national director of markets, says research recently undertaken by JLL on the office supply pipeline found that there is very little space likely to be completed until 2018.

“Space that is coming into play before this period is almost all preleased,” Grant says. “Last year was a record in terms of the take up of office space in Auckland. Absorption of office space from December 2013 to December 2014 was approximately 69,500 sq m in the Auckland region and that is the biggest annual take up JLL has ever recorded.

“With the supply pipeline still a while away, the lack of available office space and rising of rents are among the many challenges that organisations are facing in today’s current commercial property market.

“Vacancy across Auckland’s office market is swiftly declining, and, with the cost of moving often prohibitive and a growing headcount, the only real option for businesses is to reconfigure their space to accommodate for expansion.”

There is an increased push toward increasing density in almost every industry and market but JLL has observes this is most prevalent across the consultancy, finance, law and accounting sectors in New Zealand.

Kane Goulden, head of integrated portfolio services for JLL, says rising rents, scarcity of space and modern work practices are forcing multi-national organisations to rethink the way they do business. “As a result some large New Zealand occupiers are exploring the suitability of alternative workplace strategies and embracing the international macro trend toward reducing their occupier footprint and consolidating into larger floor plates.

“We are seeing this trend in the large corporates which are implementing more efficient space solutions to facilitate business expansion when the cost of moving is prohibitive, or as is the case with Auckland, where there are no alternatives available.”

According to CoreNet and JLL research in the United States, the average office density for Class A offices in 2001 was 28 sq m per person. Today, this ratio is approximately 16 sq m per person and it is still contracting quickly. Most of JLL’s large corporate clients in the US are now pushing for densities closer to 14 sq m per person and lower, and this development remains the same for Asia Pacific.

Goulden says key drivers causing corporate occupiers to optimise their footprints, are the strong continuation of occupier demand that is pushing the rental growth, the decline in vacancy in Auckland’s office market, and an attempt to drive workplace and efficiencies.

“A successful workplace strategy not only helps companies reduce their occupancy costs and space requirements, but 61 per cent  of companies now look to their workplace to increase employee productivity, staff satisfaction and retention, thereby creating a culture ready to adapt to future business evolutions. 

“Tenants suffering from a lack of space due to an expanding business are going to have to embrace this macro trend. JLL predict that occupiers are going to be 20 per cent more efficient in their workplace footprint in the next 10 years.”

Goulden believes this is a structural shift not a temporary condition and expects the downward trend on space-needs-per-person to continue.

He says New Zealand continues to experience economic growth at a faster pace than Australia. “At the end of the first quarter for 2014 the annual gross domestic product [GDP] growth was 3.3 per cent for New Zealand and 2.7 per cent for Australia according to Statistics New Zealand.” 

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Kane Goulden (left) & Mark Grant (right) of JLL.