Secondary property an option for tenants facing record prime shortage
Vacancy in secondary Auckland CBD office property remains elevated and presents a realistic choice for tenants that are willing to look further afield from premium rated properties says a market report by real estate consultancy JLL.
“Prime vacancy has been reached its lowest point ever in the 26 year history of real estate consultancy JLL’s office vacancy survey,” the report states.
Overall JLL says the Auckland CBD office vacancy is now at 7.9 per cent falling from 10.5 per cent a year earlier.
“This is one of the largest 12 month declines on record and is an indicator of things to come. Premium vacancy is at its lowest point in the history of JLL’s survey at 0.6 per cent. This is lower than the 3.4 per cent achieved in the previous peak of the market through 2006 and 2007. Grade A vacancy is at 2.2 per cent, also a record low and secondary vacancy has fallen but remains elevated at 13.3 per cent.
“With such a critical shortage in prime office space and limited new supply in the short-term, this situation is likely to persist for some time,” JLL says.
“However, while the immediate outlook remains tight, there is hope on the horizon. New supply particularly in the Viaduct will ease pressure with Precinct and Goodman delivering new stock in the long term. Significant tranches of space are likely to come on line over the medium term in the CBD also. These include the potential refurbishment of 125 Queen St generating 17,400 sq m, a building upgrade for 22 Fanshawe Street giving 7500 sq m, and large tranches of available space at 385 Queen Street.
“When the Auckland office market sees vacancy fall below 10 per cent this tends to indicate that conditions are tightening for tenants and landlords alike,” says Justin Kean, national director of research for JLL. “Overall vacancy is now less than 8 per cent and significantly less than this in prime stock. As available inventory heads below this threshold the comparative opportunities for tenants diminish and landlords begin to be able to dictate terms.”
Justin Kean- National Director of Research- Jones Lang Lasalle
Mark Grant, national director of markets for JLL says tenants now need to look further afield. “CBD vacancies are at record lows but the CBD Fringe still sees vacancy sitting at 11.1 per cent with Newmarket at 9 per cent meaning these markets present options to tenants looking to expand.
“In addition, there remains secondary space available which is, perhaps not ideal, but ot presents an opportunity to trigger refurbishment. Tenants will also need to plan further ahead, engaging with landlords today for expiries that are as much as two years in advance.”
JLL’s advice for tenants is “be quick” even though there remains a degree of choice in the City Fringe and Suburban locations. However, these options will be highly sought after and will shift quickly as the market moves through the next part of the cycle.
Grant says developers looking to bring refurbished space into the market are taking a risk. “Tenants can mitigate that risk and ensure the refurbishment takes place by pre-committing to space in advance, creating a win-win scenario for both parties. This is likely the best approach in a market where options are quickly becoming a thing of the past.”