Good times ahead for commercial investors

Auckland’s CBD office vacancy rate is dropping and demand is building, especially for high-quality stock, real estate agencies say.

Thursday, April 24th 2014, 12:00AM

by The Landlord

Bayleys said the overall vacancy rate for the area was 13% in the middle of last year but had dropped to 11% by early 2014.

It said the decrease in vacancy rates was being driven by the top end of the market. “The prime vacancy rate, which encompasses premium and A-grade buildings, has declined over the last two years and now sits at 6.9%.”

Bayleys said there had been a flight to quality and a desire from tenants to be in buildings with sufficient seismic stability.

Britomart was the most popular office precinct and the higher rates of vacancy in the downtown region had eased.

Meanwhile Colliers said banking, insurance and professional services were the industries putting the most pressure on rents. It said the trend was likely to gain momentum.

National research manager Chris Dibble said: “Central Auckland’s largest employment groups are in the finance/insurance sector; the administrative/support sector, and professional/scientific/technical services. The importance of these groups has grown over the last decade, rising to 54% of overall employment in 2013 from 46% in 2002.”

He said the growing reliance on a few key industries in the office sector would underpin higher activity levels as demand for high-quality office space increased.

The forecasts point to more employment growth in the finance and insurance sectors over the next three years in Auckland, averaging around 2% a year combined. While space planning for existing businesses will accommodate some of the expected rise in employees, the requirement for more expansion space was growing, he said.

“Given the predominance of the finance and insurance sectors to occupy prime buildings, which currently have a vacancy rate nearly half the long-term average, accommodating them will be harder than ever before. The pressure on supply will lift rents, and we are already seeing signs of this.”

The percentage change in prime rentals was 2.1% in 2013, with a forecast 4.8% increase through 2014. Vacancies in the CBD fell to 4.7% in December 2013, from 7.5% in December the previous year, and they are still decreasing.

“Record high business confidence and better employment prospects are a sweet spot for landlords in the office sector. Until these new projects come on line, we will be seeing continued downward pressure on vacancies and upward pressure on rents for office space,” Dibble said.

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