Prime office space still in demand in major cities

Premier office space in Auckland’s CBD remains highly desirable for businesses as the ‘flight to quality’ trend continues alongside a growing demand for specific locations.

Recent research from Colliers indicates the prime grade vacancy rate across the Britomart, Viaduct Harbour, Wynyard Quarter and Victoria Quarter precincts stands at just 1.7 per cent.

Sam Gallaugher, director of office leasing at Colliers, says the signs remain clear as to why businesses are targeting these areas.

“The ability to provide employees with an experience-rich workplace, promote collaboration and innovation, and meet ESG requirements are more easily achieved within prime quality premises,” Gallaugher says.

“The flight to quality, which has been apparent for some time, has gathered momentum during the past two years as businesses and government departments have looked to secure premises which meet the rapidly evolving operational and regulatory requirements of modernday offices.

“As workers have returned to the office following the loosening of Covid-19 restrictions, Auckland’s most sought-after locations have seen a surge in demand. The PwC Tower in Commercial Bay is fully leased and the surrounding eateries are constantly busy with office workers.”

In the CBD, the Western Corridor, Upper Queen St and Quay Park precincts have been impacted by Covid-19, construction and roading upgrades, bumping vacancy rates above 15 per cent with the education sector hit particularly hard by border restrictions.

“There’s a range of challenges facing these precincts. If international students return, alongside the removal of roadworks, and the future opening of the City Rail Link there is light at the end of the tunnel,” Gallaugher says.

“These factors have also created a value leasing option in these areas with rental rates becoming very competitive, which will be highly attractive for the right tenant.”

Wynyard Quarter remains particularly desirable among prospective occupiers. Colliers is leasing two new buildings at 124 Halsey St in Wynyard Quarter, which are being developed by Precinct Properties, and the 6-Green Star office buildings that will be known as Wynyard Quayside are set to open in late 2024.

There are currently active development pipelines across Auckland and Wellington.

In Auckland approximately 78,700sq m of office premises are under construction and targeted for completion by the end of 2025.

In Wellington projects under construction are earmarked to deliver 69,000sq m between now and mid-2026. In addition, a further 69,000sq m of office space is being refurbished or strengthened.

Ian Little, associate director of research at Colliers, says the Wellington office leasing market continues to experience low vacancy rates with overall figures now the same as prepandemic levels.

“In Wellington vacancy within the prime sector is a negligible 0.6 per cent versus 7.3 per cent for secondary grade space,” Little says.

“While new projects have been completed in recent years, the removal of stock, either permanently or temporarily, due to earthquake damage or low seismic ratings in the capital, has seen the total inventory reduced by approximately 15,250sq m over the past five years.

“Prime grade stock has increased over the five-year window, but the removal of the Asteron Centre has again reduced stock during the past year.”

Little says as the demand for quality space in Wellington intensifies, rental rates have risen.

“While preferred locations also command higher rentals, tighter market conditions have limited the variation across property grades. The lack of leasing options within the prime grade sector has driven rental growth across the CBD and led to increased competition for space within better quality secondary grade buildings.”