Vacant CBD office space at lowest level
The new Bayleys House in the Wynyard Quarter will add 8000sq m of new space.
Empty Auckland central city office accommodation is now at its lowest level since Bayleys Research began its CBD vacancy survey in 2003, says Ian Little, Bayleys’ national research manager.
“This is the first year overall vacancy has been below 7 per cent while B-grade vacancy rate is now 9.4 per cent - the first time it has been below 10 per cent since 2009,” Little says.
The latest occupancy surveys completed by Bayleys Research show office vacancy rates in Auckland’s CBD and in the CBD fringe continuing to move down over the past year on the back of strong tenant demand, particularly for new premises.
A total of 1,761,025sq m of office accommodation surveyed across these precincts reveals that the overall CBD office vacancy rate has dropped to 6.4 per cent from 7.8 per cent in early 2016; while on the city fringe, the amount of empty space edged down to 10.1 per cent from 10.5 per cent.
Prime grade (premium and A-grade space) vacancy in the CBD has remained unchanged at a miniscule 2.4 per cent despite an increase in the total inventory of 28,654sq m - the largest growth in new supply for six years.
“This increase is largely due to the completion of Fonterra’s new headquarters in Fanshawe Street and the BDO Centre at 151 Victoria Street West, now fully leased,” Little says.
B-grade space is still the largest sector of the CBD market although the inventory has dropped to 517,704sq m from 528,230sq m in January 2016 as a result of refurbishments underway and redevelopment projects to apartments predominantly.
“High levels of business confidence and employment growth in the service sector have been driving demand for office accommodation,” says Little. “However, it is likely that we have reached a cyclical low in terms of CBD vacancy as a substantial new development pipeline will begin to outpace demand.”
He says there are already indications the tide is close to turning, with only a small drop in vacancy in the past six months from 6.7 per cent in Bayleys Research’s July 2016 survey to 6.4 per cent. The amount of vacant A-grade space has increased over the past six months, its first upward movement in three years, due to the transition of large tenants in the northern CBD to premium grade buildings.
“More than 40,000sq m of new prime space will also come on stream this year,” Little says. This will include three buildings in the Wynyard Quarter – Datacom with 16,000sq m, Innovation 5a with 8500sq m and Bayleys House with 8000sq m. A new building at 46 Sale Street will add another 10,000sq m.
Vodafone NZ Ltd is vacating its 14,000sq m head office building on Fanshawe St as it consolidates its operations in Takapuna. The new occupant in the building will be Auckland Transport which will centralise its operations from 19 to four buildings in the process.
“Most of these new and refurbished premises have already been preleased, or are likely to be let by the time they are completed, but the challenge will be back-filling buildings the relocating corporate tenants leave behind,” says Little. “In cases where tenants are centralising from a number of locations, they are generally leaving more space behind than they are moving into, because the new buildings enable them to occupy space more efficiently. Also the number of residential conversions could slow as a result of construction and funding capacity constraints. Therefore, we would expect CBD office vacancy rates to start heading back up again this year.”
Little says the CBD fringe, encompassing College Hill, Newton, Grafton and Newmarket and Parnell, has had a less pronounced decrease in vacancy than the CBD over the past year – just under half a percentage point.
However, the current level of 10.1 per cent is the lowest recorded since 2009 and well below a post global financial crisis peak of 16.9 per cent in 2011.
Fringe suburbs have continued to benefit from a good level of tenant demand for better quality premises and there was also a reduction in available office space of over 15,000sq m as secondary graded buildings were removed from the office market permanently for a change of use to residential or, temporarily, for refurbishment.
Newton (13.5 per cent) and Grafton (10.6 per cent) recorded reduced vacancy rates, while Newmarket (11.1 per cent) showed little change and the amount of empty space in College Hill increased to 12.7 per cent from 7.5 per cent.
Parnell’s re-emergence continues with vacancy plummeting to just 3.2 per cent from over 13 per cent two years ago and from 6.1 per cent last year.
Little says Newton is also a suburb that is likely to grow in popularity over the next few years as it benefits from the ‘catalyst’ effects of the city rail link and favourable Unitary Plan zonings which will lead to an intensification of mixed-use and commercial development.
Mug shot of Ian Little, Bayleys national research manager who is quoted in the story.