Auckland office plans to stay on drawing board
Colliers research director Alan McMahon says recent finance company collapses are likely to cause a reduction in the number of new office developments in Auckland.
Other researchers have recently highlighted how a high number of planned developments may create a glut of office space.
Over the past couple of years during a period of declining vacancy rates there have been a number of proposals from developers planning to bring more than 250,000sq m of new space to Auckland. Mr McMahon said that amount would more than double the southern corridor's existing stock.
"But the global credit crunch and the demise of 30 New Zealand finance companies, triggering an unprecedented tightening of development finance, means many of these projects will never leave the drawing board. In our estimation only 80,000sq m of new space is likely to be available."
He said continuing strong demand for good quality metropolitan office property was still driving a dramatic drop in vacancy rates which his research shows have fallen to a record low of 5.3 per cent after a surge in leasing. McMahon says rents are rising and new developments have been leased before they are finished.
But he also warns of volatile times and says the immediate past may not be a reliable guide to the future. Property investors should not assume that just because tenants are paying the rent they are immune from falls in property values.
"It is clear that people have been encouraged to put their money into higher- risk investments than was prudent. This is a recurring theme for New Zealand savers and their advisers, who often seem to have trouble distinguishing prime from subprime, or blue chip from Blue Chip."
The value of secondary properties has fallen because they were over-priced as risks were ignored. Tenants are more cautious, especially retailers and this has spread to the office sector.
"Landlords feeling sorry for themselves might like to reflect that Colliers International's rent indices have shown fantastic growth recently."
Rents in Auckland's prime CBD offices have climbed 31 per cent in four years. In Wellington, tenants are paying 44 per cent more than in 2004.
Mr McMahon said that despite everything, fundamentals for the office sector remained strong and it continued to outperform all other property categories. The Property Council's Investment Performance Index shows annualised returns of 18.3 per cent across all major property sectors for the year to March.
Recent big purchases include funds management group Orchard Funds Management increasing its investment in New Zealand to more than $200 million when it bought Eden Business Park in Mt Eden last year for $102.6 million. Orchard pans to develop more buildings there