Thriving North Shore economy puts the squeeze on office space

A combination of continuing business expansion and little new office building construction is pushing vacancy levels for better-quality commercial premises down – and rentals up – on Auckland’s North Shore, according to latest real estate research.

New data from Bayleys Research shows the North Shore has the lowest office vacancy rate of all of Auckland’s major office precincts – at 7.8%. The Shore’s vacancy rate is lower than the Auckland CBD (8.8%), Auckland CBD fringe (13.7%) and the Southern Corridor from Greenlane to Penrose (8.8%).

The squeeze on office space is mostly evident at the top end of the market – with the vacancy rate for prime space on the North Shore dropping a significant 1.2 percentage points to 5.8% this year. The vacancy rate for A-grade premises in Takapuna is less than 1% and there is no vacancy at all in the precinct’s premier office park, Smales Farm. 

Bayleys North Shore Commercial’s office leasing and sales team manager, Alex Strever, says the region’s improving economy has produced steady growth in office premises leasing activity, as well as owner-occupiers buying empty premises.

“Increased competition for space on the North Shore has resulted in a reduction in incentives being offered to office tenants and some moderate increases in rentals,” Mr Strever said.

“A very low level of new office construction is also contributing to the fall in vacancy levels for higher-graded premises. 

Mr Strever says an increase in land prices and construction costs means net rentals would need to be near $350 per square metre for a development project to stack up – unless the developer has been a long-term owner of the land.

“However, the rental levels that businesses are willing to pay for office premises on the Shore are some way short of this. 

“This reflects the fact that a lot of businesses on the North Shore are small-to-medium-sized companies or professional firms, which don’t have the same big accommodation budgets as larger corporates.

“However, at some point North Shore businesses may need to accept that they will have to pay more if they want the latest in healthy, productive buildings – and they could find they need to provide these premises if they want to attract and retain staff.”

The research from Bayleys identifies that the only major office project under way on the North Shore at present is Mitre 10’s development of a new national support centre at the Orchard Park business precinct in Albany. Mitre 10 will be occupying most of the 7000sq m building, apart from 1400sq m on the ground floor, which is being offered for lease.

Most current development activity on the North Shore involves the refurbishment and refitting of existing buildings – mostly in Takapuna. Recent examples of this have included the complete refurbishment of the Vero Building at 12-14 Northcroft St and the upgrading of floors at 33 Hurstmere Rd. 

Mr Strever says much of the North Shore’s leasing activity at present is focused on corporate repositioning – with businesses moving into refurbished premises or space which has opened up as a result of other tenants relocating. 

“An example is the Auckland Council building at 1-7 The Strand, Takapuna, which was the former North Shore Council’s headquarters. With Auckland Council consolidating much of its administrative functions into a high-rise building it acquired from ASB Bank in Auckland’s CBD, some of its floor space in The Strand has been offered for sublease,” he said.

“There has been interest in this space because of the building’s large, efficient floor areas and its location in the heart of the CBD close to Takapuna Beach.” Merged telecommunications companies Call Plus and Orcon have taken 2317sq m. 

Orcon’s relocation to central Takapuna has opened up an opportunity for other tenants in the space that it has left behind at 28B The Warehouse Way in the Akoranga business precinct at Northcote. 

Levels one and two, which are both just over 1000sq m, are now available at near $300 a square metre. 

Meanwhile, car parking availability is becoming an increasingly serious issue for office tenants on the Shore, Bayleys North Shore Commercial director Daryl Devereux says.

“And it is being exacerbated by Auckland Council’s endeavours to reduce office building car parks in an effort to increase public transport usage,” he said.

“This is social engineering for the future that isn’t working in real time and is compounding an already chronic parking shortage in Takapuna and Albany.

“There is huge growth going on in Albany – including plans to double the size of Westfield Mall and Massey University’s Albany campus – yet car parks are being taken away.

“In our view, any office building with less than one car park per 35sq m leased is going to create serious issues. We’ve seen some proposed office developments where the ratio is nowhere near this and, if they are allowed to proceed, they will make already serious parking issues in surrounding streets a whole lot worse. They will also struggle to attract tenants who will prefer buildings offering good parking ratios.”

Neil Prentice writes for Bayleys Real Estate