Space invaders gobble up Auckland’s best offices

The amount of empty office accommodation within Auckland’s central business district (CBD) has fallen for the fifth consecutive year – reflecting the city’s strong economic performance, according to new research.

Data from real estate agency Bayleys shows Auckland’s CBD’s overall office vacancy rate has fallen to 10.6% – down from 11.4% in January last year.

Bayleys Research national manager Ian Little says the vacancy rate reached a cyclical high of 14.1% in early 2010 as the recessionary economic environment took its toll on the business community. 

“However, since then the economic recovery has gathered momentum and has fuelled new business formation, expansion and relocation. This has resulted in the amount of office space occupied by businesses in the CBD increasing by nearly 200,000sq m between early 2010 and this year,” Mr Little says.

“The current overall vacancy rate is now at its lowest level since early 2009, before the impact of the global financial crisis had taken full effect, when it sat at just below 10%.”

The latest Bayleys Research survey shows vacancy within the prime end of the market – premium and A grade space – to be all but non-existent at just 3.3%, compared with 4.4% in 2009. 

Within premium premises, the survey found only one floor area of more than 1000sq m vacant and no instances of contiguous floors being available. The vast majority of the limited supply of space in the top grade comprises small areas on part floors. 

“While vacant A-grade space is greater at 16,250sq m, it again comprises primarily small areas within dislocated floors over many buildings,” Mr Little said. “The survey identified only four vacant areas of more than 1000sq m and only two instances of whole contiguous floors being available. 

“In contrast, vacancy within B and C grade space increased to a combined 15.2% from 14.3% a year ago, although it has declined from 16.9% in our mid 2014 survey. This reflects a pronounced preference for higher grade space – with a number of companies having ‘traded up’ in an improved economic environment. 

“There has also been a small decline within education sector occupation, which has an impact on lower grade vacancy figures as the vast majority of space occupied by the sector is located within B- and C-grade premises.”

Vacancy fell in eight of the CBD’s 11 precincts – declining in Britomart, Downtown, peripheral and Upper Queen St, Quay Park, the Symonds St ridge, the Viaduct, Victoria Quarter and Wynyard Quarter. Only Anzac Avenue and midtown bucked the trend, with little change within the city’s western peripheral precinct.

The largest decline was recorded in Quay Park, where a raft of new lettings to companies such as HiFx, Revlon, ANL and Airwork Holidays has pushed vacancy down from 15.1% in January 2014 to 4.9% this year. The Britomart precinct is fully occupied and has the CBD’s lowest vacancy.

“The highest absorption was recorded within the peripheral and Upper Queen St precinct where occupancy has increased by just over 16,250sq m over the last year – predominantly due to Auckland Council’s move to 135 Albert St, which was under refurbishment at the time of the 2014 survey,” Mr Little says.

In the city’s largest precinct, Downtown, overall vacancy declined slightly to 12.1%. However, over a quarter of the precinct’s vacancy is comprised within one building – 125 Queen Street. It has been largely vacant for the past five years following the BNZ’s relocation to the Deloitte Centre on the other side of Queen Street. 

However, the Downtown precinct has followed the overall trend at the prime end of the market and supply has tightened further from the already low 4.9% recorded in 2014 to 3.1% in early 2015. 

“Given the continued strong performance of both the national and Auckland economies, the pressure on available office space is only going to continue over the year ahead as businesses remain in expansion mode,” Mr Little forecast.

“Accommodation options for companies looking to secure prime grade space will remain limited,” he added.

“It is clear, however, that in the current economic climate, companies must plan well ahead if they foresee a requirement for additional or new space as they will be entering an extremely competitive market. 

“There is already evidence of significant upward pressure on rentals, which will continue until the development pipeline increases to alleviate the pressure on the prime end of the market. 

“The acute shortage of prime space is opening up opportunities for owners of well-located B- grade CBD office space, and we are expecting rentals to rise in some B-grade space as well as prime space in 2015. 

“We are also expecting more older office buildings to be taken out of the market for conversion to apartments as the inner city residential market gathers further momentum.”

Neil Prentice writes for Bayleys Real Estate