The collapse of the finance company sector is partly behind an increase in Auckland CBD commercial office vacancies, say real estate agents.

Colliers International research and consulting director Alan McMahon says vacancies in prime Auckland buildings have risen 2.5% over the second half of last year, largely due to finance companies moving out.

Total vacancies including secondary or non-prime office space have risen 0.7% over the same period according to Colliers’ latest Office Market Indicators Report.

Vacancies in secondary space are predicted to rise as new developments come online and space is freed up from companies moving into their new buildings.

“It just depends on how quickly the buildings will be able to be re-leased,” Mr McMahon says. “In some cases they’re A-grade buildings so that might not be difficult, but some of the older buildings might be a little more difficult to re-lease – it might take some capital expenditure to get those buildings up to a standard that can be re-leased.”

Although the CBD skyline is now dotted with cranes, the Colliers report notes that they are likely to become an increasingly rare sight in the next two years as the diminishing availability of credit, cautious tenant demand and dropping capital values of completed projects combine to make development a difficult proposition.

Despite some companies shelving expansion plans, Colliers estimates there is still demand for 50,000sq m to 60,000sq m of office space from businesses that want an Auckland CBD address.

But in light of the marked downturn in New Zealand’s economy, Colliers says the pendulum is swinging well and truly back in the tenant’s favour. In this environment, tenants are demanding flexible lease terms with CPI-based reviews.

CB Richard Ellis director Zoltan Moricz is also forecasting further gloom over the rest of the year, predicting vacancy rates of 10-11% by year’s end because of the new buildings coming online over 2009.

“It’s not so good for landlords but there’s more options for tenants and it probably impacts on rents as well in the tenants’ favour.”

Vacancies in 2010 should probably drop back somewhat, given that supply of new buildings will drop, but in 2011 supply is set to increase again. Vacancies will then be dependent on demand and how that will offset the new supply coming online.

“We’ll have three reasonable sized buildings: the Telecom building on Victoria St opposite Les Mills, and a couple of buildings in the Britomart area – one for Westpac and one for Ernst & Young coming on, so when you add it all up it’s about 50,000 square metres of new space in 2011. Hopefully by then the economy will be stronger and demand will rebound.”