Magazine article New Zealand Management

Office Market Outlook

Magazine article New Zealand Management

Office Market Outlook

Article excerpt



Prime office buildings have led the overall market in terms of demand and rental growth. There was no new office supply over the six months to June 2006 and prime vacancy rates fell to just 3.0%, down from 4.0% in December.

The total CBD vacancy across all sectors of the office market remains around 11%. We expect to see vacancy levels remain relatively high in the 'C' and 'D' grade category in the medium term. The move by many users to quality space in the new office towers has created more vacancies in the lower quality buildings. However strong leasing activity particularly in B grade buildings has maintained balance in the market.

The level of incentives offered to tenants taking new office space continues to decrease as a proportion of face rents. The balance of power at the top end of the office sector lies clearly with landlords. New benchmark levels of rent are being set continuously both for new lettings and at rent review. The latest levels include $425/[m.sup.2] on level 21 of the Lumley Centre and an assignment of a mid level floor in Vero Centre which included a substantial key money payment indicating a significant lift in market rents in the building. There have also been dramatic increases in rent in the upper levels of other major buildings including PWC Tower where there have been several recent rent reviews indicating a top floor rental at about $480/[m.sup.2] net. The latest new letting in the building for a part floor was at $460/[m.sup.2]. It is expected that rents in the proposed BNZ Building will top $500/[m.sup.2] by the time it comes on stream in 2009.

Going forward the highest rental growth will continue to apply to the better quality space which is forecast to be in much shorter supply. In the meantime tenants looking for quality CBD space are currently faced with an extreme shortage of stock.

Recent office developments within the Auckland CBD market include:

* Progress on Britomart continues. The former Chief Post Office is the first building in the development which has been made available to the market. The character space has been refurbished to a high standard with three floors of circa 1650[m.sup.2]. The upper two floors have been leased to Maersk (NZ) Limited. Other character buildings are scheduled for refurbishment in the near term with some leasings already achieved. The Maritime and Northern Steamship buildings are substantially complete with the Levy Building nearing completion of refurbishment. The nearby Union Building is also likely to be refurbished to provide A grade waterfront offices. The Oriental Markets site has been purchased by the Britomart Group.

* Quay Park--Two office buildings currently being developed by Manson Development Limited, Quay 1 6116[m.sup.2] and Quay 2 14,000[m.sup.2] scheduled for completion late 2007. A separate carpark is currently under construction as well as a further office building being proposed.

* Viaduct Harbour--A new head office for Air New Zealand on the corner of Beaumont Street and Fanshawe Street is near to completion (NLA-15,500[m.sup.2]). Air New Zealand will vacate several premises in the CBD, including a large portion of Quay Tower. Further office developments recently completed or under construction in the precinct including 22 Viaduct Harbour Avenue (tenanted by Microsoft and Hewlett Packard) and 152 Fanshawe Street. An apartment complex is also proposed at 148 Fanshawe Street.

* 80 Queen Street--Bank of New Zealand (BNZ) is a proposed 19 level tower with the majority occupied by BNZ but with about 8000[m.sup.2] likely to be available for lease.

* 35 Albert Street where Kitchener Group is proposing to include 10 floors of offices within their apartment complex.

* Manson Developments have purchased the NZ Post Auckland Mail Centre in Victoria Street for future redevelopment with offices potentially in the mix. …

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