Office space hunt moves to city outskirts
Auckland is seeing a record low in vacancy rates for offices in the heart of the city.
According to a report by Colliers International, vacancy rates were also falling outside the city. Outside of the central business district the vacancy rate was 6.3 per cent – well below the 10-year average of 8.2 per cent but slightly above last year’s rate of 6.2 per cent.
The city fringe is at a record low of prime office vacancy, at 2.6 per cent.
Colliers research manager Leo Lee said a shortage of ‘‘prime office space’’ closer to the city centre was driving businesses to seek affordable offices more towards the outskirts of the metropolis.
‘‘As a result, metropolitan vacancies rates remain low, while rents are rising,’’ he said.
‘‘Spillover demand is driving strong growth in the metropolitan office market, particularly in areas close to good transport hubs and amenities, such as the Southern Corridor of the North Shore’s Smales Farm.’’
The Smales Farm technology park in Takapuna sits on land that once was home to grazing cattle.
Now it is now home to Air New Zealand, Vodafone, NZI Insurance, IAG New Zealand, Sovereign, and Beef and Lamb New Zealand offices and building another office building called the B:HIVE (Business Hive) for another 1000 workers.
The Southern Corridor has long been a main precinct for Auckland businesses, especially with more grade-A office stock built since the early 2000s.
The area extends along Great South Road from Manukau Rd to the Penrose motorway interchange.
Investment yields in the Southern Corridor were at record lows for both prime and secondary grade property.
According to the report, the difficulty for investors was finding properties in the area. ‘‘This has seen competitive pricing when stock becomes available,’’ it said.
Lee said areas outside the city allowed larger businesses to house all their employees under one roof or on one floor in ‘‘more collaborative and connected workplaces’’. Such arrangements could be cheaper than having a number of locations and helped attract and retain staff.
He said two developments, the Millennium Business Centre in Greenlane on the Southern Corridor and the Mercury Building under construction in Newmarket, were examples of the trend, as well as the growing prevalence of syndicates purchasing property because of the low-interest-rate environment.
The Mercury Building, on the corner of Broadway and Alma St in Newmarket, will soon house the employees of Mercury Energy from four Auckland offices.
It is being developed by property syndicate Augusta Funds Management for more than $140 million. Augusta Capital, the parent company, purchased the site for $143m.
Property syndicate Oyster Group’s $210m purchase of the Millennium Business Centre was the largest office sale in New Zealand last year.
‘‘Until debt costs and alternative asset returns rise significantly, syndicators will continue to be active,’’ Lee said.
He attributed demand in the office market to Auckland’s underlying economic strength.
‘‘Auckland is the economic powerhouse of New Zealand, contributing 37 per cent [to] GDP.’’
Lee said population and employment growth as well as increased construction activity will help keep vacancy low and rents buoyant over the next year.
The latest Regional Perspectives Report from Infometrics published in March predicted Auckland would add more than 83,000 jobs over the next four years.
Over the last six months almost 30,000 square metres of new prime office stock was completed. A further 65,686sqm was under construction and another 30,000sqm was proposed for development.