Demand hikes construction in city fringe suburbs

4:55 PM Friday May 29, 2015 Colin Taylor

City fringe suburbs like Parnell are leading the way in new construction projects.

Auckland’s city fringe locations like Parnell and Freeman’s Bay are leading the way in new construction projects to meet a strong tenant demand for dwindling office space.

“This is one of the tightest periods in relation to leasing options for tenants in the last six years,” says Chris Dibble, associate director of national research for Colliers International. The agency’s latest Auckland metropolitan research shows there is about 1.7 million sq m of office space in the market but there is only 135,000 sq m of vacant office space available for lease. The current 9 per cent city fringe vacancy rate outside the Auckland CBD is the lowest in five years, the research shows.

“Demand for office space across the metropolitan office market has been exceptional in the last five years with annual net absorption averaging 26,000 sq m per year,” Dibble says.

He says the shortage been the catalyst for the creation of 100,000 sq m of new space during the last three years that tenants have been able to occupy.

Sam Gallaugher, Colliers’ office leasing director, says more than 70,000 sq m of new office developments are planned between late next year and 2018.

“This additional space - mainly speculative building led by developers like Mansons TCLM, Dominion Construction and Goodman - will fill up fast,” Gallaugher says.

“St Georges Bay Road in Parnell and Freemans Bay’s Sales Street are two hot spots that have been targeted to satisfy the demand by businesses for modern, efficient buildings in areas that will attract staff.”

Dibble says the growing number of tenants requiring space before this new stock comes on line, will need to compete for existing stock, and this will force already record low vacancy rates down pushing rents and capital values up.

Matt Lamb, also office leasing director for Colliers, says the market opportunity to supply office space is so strong that non-traditional property companies like Giltrap Group Holdings Ltd are making a foray into the office development sector.

“Giltrap's decision to use and develop one of its Great North Road sites for an office development confirms two current trends - developers are responding to market demands and the appeal of city fringe locations..”

Colliers’ report also shows that tenants are giving closer attention to properties outside the Auckland CB with the city fringe receiving the majority of the uplift in tenant demand and most of the new supply.

“The precinct has catered well to the overflow of CBD tenants who can’t find space, along with the expansion of businesses due to this favourable economic growth cycle,” says Lamb.

The report notes that both New Zealand’s economic buoyancy, and Auckland‘s growth profile, will continue to provide solid tenant demand for Auckland’s metropolitan office market.

“Despite the increases in supply, a forecast for strong demand means there is likely to be no respite in rising rents for tenants,” Dibble says. “This is a typical feature of a market exhibiting tenant demand that is not matched by enough new supply.”

He says office vacancy in the North Shore has been trending down since a peak of 13 per cent recorded in March 2011 and the current 5.1 per cent vacancy rate is the lowest in a decade.

An analysis of 500 Southern Corridor leasing deals in the last seven years indicates an average maximum vacancy period of less than one year with office space over 2000 sq m typically vacant for less than eight months.

Auckland’s southern precincts, which contain about 300,000 sq m of office space, are also reporting high leasing activity.

This has spurred the development of new premises in areas such as Highbrook and the Airport, along with the refurbishment of existing premises in areas like Mt Wellington, Penrose and the Manukau CBD.

Matt, Chriss.jpg

Chris Dibble (left) and Matt Lamb (right) of Colliers international.