Magazine article New Zealand Management

Office Market Outlook

Magazine article New Zealand Management

Office Market Outlook

Article excerpt

Auckland

CBD

Against initial expectations, the CBD is growing in popularity with both office tenants and residents.

Public transport improvements, continuing numbers of people moving into the inner-city, an increase in the number of 24 hour services and establishments, and a mini office development cycle have given the city centre a boost.

In the CBD there is little space available on premium office floors, with vacancy at less than 1%.

Across all prime CBD of-rice space there has been a marked reduction in vacancy rates--down to 4.4% from 6.7% in June last year.

This figure is expected to drop further in the next couple of years as a number of large tenants move to new CBD premises. A wave of refurbishments will be undertaken, particularly in buildings with large floorplates, to bring their former offices up to the standard now required by corporate tenants.

About 32,000[m.sup.2] of space will become available, although not all of it immediately. While Air New Zealand is moving out of Quay Tower and Downtown House and Minter Ellison Rudd Watts is shifting from BNZ Tower on Queen Street within the next year to 18 months, their leases don't expire until the first quarter of 2007.

Short-term leases are expected to be put in place in the BNZ Tower, Quay Tower will be refurbished and plans are yet to be announced for Downtown House. The Simpson Grierson building on Albert Street is to be refurbished and become available for lease as soon as the law firm moves to its new offices at Lumley House on Shortland Street.

The total CBD office vacancy rate sits at about 10.7%. While it is falling, it is much slower than the prime index, underlining the fact there is a persistent, hard to shift, vacancy in lower grade office buildings around the CBD.

A number of office-to-apartment conversions are expected, as secondary grade office block tenancies expire and the buildings are put to new use. Planning permission has already been granted for 20 year-old Peace House at St Martins Lane near Auckland University to be doubled in height and converted into apartments.

Buildings with leases expiring over floorplates of less than 750[m.sup.2] will, in some cases, be strata titled and sold to owner occupiers.

Greenlane

Greenlane is the most active office leasing area in Auckland.

Macquarie Goodman, in particular, is dynamic in this popular fringe area. It has just successfully leased more than 8000[m.sup.2] of office space in its speculative development at the front of Central Park. Tenants who have relocated to the building, include GDC Communications, Sealord, TSE Group, and Yellow Pages.

In addition, Macquarie Goodman is developing Millennium II, an office park of 18,000[m.sup.2] over three buildings. This development features big floorplates, a large covered secure carpark, plus a gym, creche and cafe. Millennium II will be finished in November this year and more than 50% is under contract or final consideration.

Immediately behind this development on Main Highway adjacent to Trends offices and cafe, a boutique development of 3600[m.sup.2] is nearing completion.

Newmarket

Developments at 139 Carlton Gore Road and on the corner of Khyber Pass and Kingdon Street are now all but leased, with no full floors remaining in either.

There is continuing demand for a new office development in Newmarket.

College Hill

Demand also exceeds supply at College Hill, with no new developments either under construction or on the horizon.

Rents

In prime Auckland CBD space rents are more than $400/[m.sup.2] per annum, while rents on the top floors in proposed new premium office buildings will rise to more than $450/[m.sup.2]. Even at $450/[m.sup.2], Auckland's prime CBD rents are half the price of equivalent space in Sydney.

While this shows strong recent growth on the back of rising construction costs and inflation, these rents are not much more than the levels achieved in the mid-1980s when the Bank of New Zealand and Rudd Watts & Stone signed up as tenants for the new BNZ Tower on Queen Street and KPMG leased Auckland offices in Princes Street. …

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