Vacancy tight across office skylines
Avertical review of prime office space indicates that Auckland’s core CBD vacancy levels are up marginally, right across the city skyline.
The survey — the 10th of its type conducted by JLL — assessed 70 of the best buildings in Auckland, Wellington and Christchurch on a floorby-floor basis.
JLL head of research, Tom Barclay, says vacancy in the core CBD has risen from 5.8 per cent to 6.2 per cent.
However, the increase is largely due to the inclusion of 125Q (the 125 Queen St building), which is still touting for tenants.
Formerly known as the BNZ Tower (and in its day the highest building in the CBD) 125Q was effectively off the market for about a decade.
It had a major refit ahead of a relaunch earlier this year and Barclay says there’s still a substantial amount of space to be let there.
Meanwhile, Auckland’s four premium towers — PwC, Lumley, Vero and ANZ — show very low vacancy, at only 3.2 per cent, though some space has freed up in Vero, he adds.
“The balance of Grade A towers across the skyline show a vacancy rate of 7.4 per cent, so it’s all been somewhat skewed by 125Q and Citigroup Centre still having the most space available for lease. But apart from these exceptions, the prime market seems to be as tight as ever.”
Barclay says performance has improved in Wynyard Quarter, with vacancy dropping from 4.6 per cent to 3.9 per cent.
The campus-style set-up of the area continues to grow in popularity with the tech-sector and larger footprint corporates.
However, additional supply anticipated post-2020, includes:
The Mansons One 55 development on Fanshawe St, which will provide more than 17,000sq m of grade-A space, and the second stage of Precinct’s innovation precinct at 10 Madden St at more than 8000sq m.
Barclay believes that the occupier breakdown of the Wynyard Quarter confirms its reputation as a tech-hub.
More than 32 per cent of the occupiers in JLL’s analysed buildings are in the IT, media and telecommunications industries, followed by 23.8 per cent which are financial services.
Rents
With vacancy minimal across two major office precincts, prime rents have continued to grow, Barclay adds.
The average prime rent sits at $490 per square metre (net) as at March.
“We are expecting the average prime rent to reach the $500 per sq m mark by the end of 2018. But while upper end premium rents in Auck- land are approaching the $700 per sq m mark, this is still relatively affordable by global standards.”
JLL’s Premium Office Rental Tracker assesses 58 prime office markets around the world and ranks them based on affordability.
Auckland has been included for the first time, slotting in at sixth position in terms of affordability — in between Brussels and Bangkok, says Barclay.
“Johannesburg, Kuala Lumpur and Manila were the most affordable global markets, while unsurprisingly the least affordable markets were Hong Kong, Beijing, London and New York.
“On the investment side of the market, the weight of offshore capital seeking Auckland office assets con- tinues to drive yields lower.
“The average prime yield has now broken through the 6.0 per cent mark for the first time in our series, reaching 5.98 per cent. We expect to see further compression throughout the year,” says Barclay.
The Wellington skyline remains the tightest in New Zealand with vacancy virtually non-existent. The vacancy rate is only 0.3 per cent and was contained to a few partial floors in the Majestic Centre at the time of surveying.
JLL senior consultant Chris McCashin anticipates some easing in conditions upon completion of 20 Customhouse Quay and the Kumutoto precinct, while expansion at Bowen Campus will also add some much needed capacity.
The Christchurch market has turned a corner with vacancy dropping from 12.4 per cent to 6.8 per cent across the prime office buildings. While the CBD is starting to fill up this has come at the expense of the suburbs where vacancy continues to rise. The average prime rental continues to plateau, unchanged at $355 per sq m (net) since the end of 2016. Over the same period the average prime suburban rent has continued to fall from $283 per sq m to reaching $260 per sq m as at March.
The CBD occupier market is dominated by professional services (31.3 per cent), the public sector (23.6 per cent) and financial services (19.0 per cent).
“The turnaround in the Christchurch market has been a long time coming, with the city having to sustain years of double digit vacancies,” says Barclay. “The growing office worker population will go some way towards sustaining the influx of new retail amenity.”
Auckland affordability slots in at sixth position — in between Brussels and Bangkok.
Tom Barclay.