JLL Research’s city & suburban office report
The growing popularity of Newmarket has seen vacancy lower to 8.3 per cent.
The following is the content of JLL’s Pulse research report for the Auckland CBD and suburban office market for the first quarter of 2015.
Strong occupier demand has resulted in vacancy experiencing a sharp fall and has put upward pressure on rentals. Investor confidence remains strong and has resulted in further compressing in yields.
The CBD Fringe has experienced a strong reduction in vacancy as tenant demand drives leasing activity, falling 4.1 per cent now sitting at 10.8 per cent as tenants secured space from the current shortage of quality space available in the CBD. Vacancy has fallen below the 10 year average which indicates the start of demand moving out of the CBD and into the Fringe. The Viaduct Harbour Precinct has continued to experience high levels of tenant interest with vacancy now sitting below 3 per cent at structural levels.
The growing popularity of Newmarket, because of its proximity to the CBD, the ongoing revival of the area, and more available options has attracted tenants and has led vacancy lower to 8.3 per cent.
Suburban markets have seen overall negative net absorption over the last six months mainly due to Newmarket reducing its stock base with 79 Carlton Gore Road being taken into refurbishment. In the CBD Fringe market, supply has ultimately declined on the back of a three properties being taken out of the stock base for apartment conversion. This was counterbalanced by buildings on Victoria Street West and Grafton Road coming back online and with only one small space being taken into refurbishment.
The completion of 151 Victoria Street West remains on target with schedule and is expected to be completed by the end of 2015. A number of new developments have been proposed in the CBD Fringe, with improving demand and increasing rentals making
Occupiers are being pushed out of the CBD due to falling vacancies and have been quick to move into the CBD Fringe. As a result we have seen rentals higher. Average rents have increased by 4.9 per cent to $213 per sq m over the last six months of 2014. The sharp drop in vacancy has also aided in shifting market balance more towards landlords, with incentives also contracting from 15 per cent to 12.5 per cent over the last six months.
Strong inquiry on the part of occupiers has resulted in upward movements in Newmarket rents, driving average rents 4.3 per cent higher over the second half of 2014.
Limited space and strong tenant demand in Takapuna has likewise pushed average rentals upward by 4.6 per cent to $228 per sq m with both the upper and lower end of the series seeing increases.
In line with increased occupier demand for decentralised office options, we anticipate a continuation of strong investor demand resulting in a continued firming of yields to new low levels. Yields continue to contract in the CBD Fringe market, with both upper and lower series have contracted by 25 basis points each with the average yield now sitting at 8.75 per cent.
Investor demand for the Newmarket precinct also remains strong and has led to further compression in yields with average yields now 8.2 per cent. Two large transactions were completed in Newmarket over 2H14 which included Bupa House and 19 Great South Road which sold for NZD 16.6million and NZD 7.1million respectively.
Average yields in Takapuna continue to firm moving 19 bps to 8.13per cent. One significant transaction has taken place over the last six months- the Auckland Council North Shore Headquarters building at 1-7 The Strand. The property comprises 15,000sqm and sold for NZD 70 million at an initial yield of 8.4per cent.
As accommodation options continue to diminish in the CBD Core and Frame, more tenants will likely look to outlying office areas for space which has been evident in recent periods. This is expected to drive further increases in rental figures which have already started to ignite by improving tenant demand.
With Investor sentiment remaining strong for suburban offices, we have seen some large transactions take place over the 2H14. As investors begin to move away from the Core CBD assets we expect that capital inflows to the suburban markets will see an increase in the short to medium term.
To tenant and occupiers: If suitable space comes up, secure it and lock in a medium length lease.
To landlords and owners: Now is the time to start implementing more favourable lease terms as demand increases.
For further information contact:
JLL Research & Captial Markets
Director, Justin Kean
+ 64 9 363 0226
Consultant, Sarah Dominey
+64 9 363 0306
Analyst, Ryan Woock
+ 64 9 363 0279