Shortage ‘casts shadow’ over city office market
Office vacancy in Auckland’s CBD hit a record 5.3 per cent low in June.
Auckland’s city office shortage caused by a lull in construction due to the global financial crisis is “casting a shadow” over the commercial property market, says Justin Kean, JLL’s director of research and consulting for JLL.
Commenting on JLL’s latest Auckland office vacancy survey, Kean says office vacancy has continued to fall hitting yet another new record threshold for vacancy within the central business district.
“Vacancy in Auckland’s central office stock, which includes The Viaduct, reached 5.3 per cent in June moving past the 5.8 per cent record reached six months earlier in December 2014,” Kean says.
“This low level of supply is now being matched with very strong demand growth meaning vacancy has reached the previous cyclical low set in December 2007.”
The overall 5.3 per cent vacancy rate in the central office market rises to six per cent in the CBD core which also matches the previous low set in December 2007.
Vacancy in The Viaduct precinct is now sitting at a miniscule 1.8 per cent.
Premium and A-grade vacancy across the entire Auckland CBD has continued to stay at very low levels with premium vacancy at 1.4 per cent of total stock and A-grade at two per cent. “However, significant movement was seen in the recent survey for secondary stock,” Kean says.
B-grade vacancy moved down from 6.4 per cent to 4.1 per cent - also a new historic low – while C-grade office vacancy moved from 11.4 per cent to 9.4 per cent.
“There has always been a clear preference for better quality stock in the CBD office market, however premium and A-grade stock is now so tight we are seeing firms having no choice but to take up space in B and C grade buildings as they face pressure to house growing workforces,” says Kean.
JLL notes that the June 2015 vacancy rate of 5.3 per cent may well be the lowest point that vacancy drops to in the current cycle.
“Vacancy is anticipated to soften over the next 12 months as new supply comes on line and tenants begin to leave behind voids across the city,” the JLL report predicts.
James Thorburn, commercial broker at JLL, the market has seen the reintroduction of refurbished stock onto the CBD market in the second half of 2015 including 125 Queen St and 22 Fanshawe St.
“These buildings, aimed at mid-market tenants, will add to available supply around the same time as Goodman completes Fonterra’s headquarters in The Viaduct along with Goodman’s new build office VXV3 and Manson’s new office development at 151 Victoria St fills up causing a loss of tenants from other areas of the CBD.”
Kean says JLL does not see project completions in the next 12-18 months as having a long term detrimental effect on the office market in the CBD but the long term supply scenario could be a different story.
“Recent announcements such as Manson’s proposal to develop a tower complex on the current NZME. site at 1 Mills Lane site and Datacom’s move to the Wynyard quarter have inflated the potential pipeline. This adds to a current pipeline which includes Precinct’s Downtown development, additional mid-rise development in the Wynyard Quarter as well as several smaller speculative developments being proposed in the CBD city fringe.. Collectively this supply pipeline has the potential to push vacancy up to elevated levels through 2018 and 2019,” Kean says.
Justin Kean of JLL.