Vacancy within Auckland CBD’s office market fell for the fifth time in six years, reflecting the City’s strong economic performance. Overall vacancy has fallen to 10.6% down from 11.4% a year earlier, this latest figure continuing the post Global Financial Crisis (GFC) trend of falling vacancy.
Overall vacancy reached a cyclical high of 14.1% in early 2010 as the recessionary economic environment took its toll on the CBD business community during which time businesses were focussed on creating efficiencies, including in their property commitments. Over recent years however, the economic recovery has gathered momentum. New business formation, business expansion and relocation has seen CBD office occupancy increasing by nearly 200,000m² between early 2010 and the latest Bayleys Research office vacancy survey.
The current CBD office vacancy rate is now at its lowest level since early 2009 when the overall rate sat just below 10%. On this occasion the make up of vacancy across the market’s quality grades is different.
Tightening up of Prime stock continues in the January 2014 Bayleys Research survey, falling from 6.9% twelve months ago to now 3.4% at the latest point in time vacancy survey.
The above graph shows vacancy within the prime end of the market, which constitutes premium and A grade space, to be all but non existent, with a vacancy rate of just 3.3%, compared with 4.4% in 2009. Within the city’s premium stock, there is only one floor plate of over 1,000m² vacant and no instances of contiguous floors being available to the market. A vast majority of the limited supply of space in the top grade comprised small areas on part floors.
While the vacant stock of A grade space is greater at 16,250m² it again comprises, primarily, small areas within dislocated floors over many buildings. Four vacant areas of over 1,000m² were identified and only two instances of whole contiguous floorplates being available.
Vacancy between B and C grades space has remained almost unchanged over the year increasing marginally to a combined 15.2% from 14.3% a year ago.
Tenant demand continues to migrate towards the waterfront. This desire to locate within the northern CBD waterfront precincts is reflected by vacancy in all waterfront locations decreasing again to historically low levels. While the southern precincts also decreased, the biggest change was in the prime end of the market. Prime vacancy fell from 4.7% in 2014 to 2.6% in 2015 reaching an all time low for the southern precincts.Given the short supply of prime grade office stock in highly desired Northern precincts, tenants are widening their search area to include the southern precincts as well, quality of space being the main qualifier for selection. The graph above shows that the vast majority of prime space is situated in the Northern precincts, with just 20% of premium and A grade offices in the Southern CBD. These factors are encouraging new office construction projects throughout the CBD.
Vacancy fell within eight of the CBD’s 11 precincts, with the vacancy rate declining in Britomart, Downtown, Upper Queen and Peripheral, Quay Park, Symonds Street Ridge, Viaduct, Victoria and Wynyard Quarter. Only Anzac Avenue and Midtown bucked the downward trend, there was practically no change in vacancy within the Western Peripheral.
The largest decrease was recorded in Quay Park where a raft of new lettings to companies such as HiFx, Revlon, ANL and Airwork Holidays has seen vacancy fall from 15.1% in January 2014 to 4.9% this year. Completion of refurbishment on level 5 of Aecom House has been recently finalised and classified vacant.At the date of the survey the Britomart precinct was fully occupied with no vacancy, solidifying its reputation as the CBD’s boutique and most popular office precinct. The vacancy which had existed a year ago has been absorbed by Lightfoot Solutions, while space at 104 Quay Street and Australis House has been removed from the survey while refurbishment projects are on-going. With insufficient stock in the Britomart precinct there will be strong demand for prime space when the major refurbishment projects are completed.
Of the two precincts with increased vacancy, Anzac Ave had a slight increase from the January 2014 survey from just over 14% to 16.6% in January 2015. A large amount of this vacancy is down to the 3016m² available in 48 Emily Place which has not changed since the Bayleys Research survey 12 months ago. Midtown has jumped from 10.6% vacant up to nearly 17% in 2015, primarily a result of Auckland Council vacating seven floors at 360 Queen Street. Anzac and Midtown precincts have a large amount of secondary stock which continues to leave them with elevated levels of vacancy.
The highest amount of absorption has been recorded within the Peripheral and Upper Queen Street precinct where occupancy has increased by just over 16,250m² in the last 12 months, predominantly due to Auckland Council’s move to 135 Albert Street which was under refurbishment at the time of 2014 survey, with three floors still under refurbishment. Vacancy in this precinct has fallen from 12.5% to 8.6%.
Wynyard Quarter had a fall in vacancy over the twelve months to January 2015 from 9.8% down to 2.7%, largely down to Moana Pacific House going through a complete refurbishment therefore being unaccounted for. Furthermore large tenants ASB and AirNZ are firmly cemented in this precinct, these two combined making up 77% of occupancy. The supply of quality space in this precinct is likely to have a large increase over the next 12-18 months with the anticipated completion of the previously mentioned Fonterra development by Goodman. This will likely reduce vacancy further as majority of new development space already has tenant commitment.
In the city’s largest precinct, Downtown, overall vacancy declined slightly to 12.1% however over a quarter of the precinct’s vacancy is comprised within one building, 125 Queen Street. It has been largely vacant for the past five years following BNZ’s relocation to the Deloitte Centre on the other side of Queen Street. The property was purchased by Winton Partners who are redeveloping the whole building. Plans include replacing the bathrooms on all of the office floors and bringing the office space up to A grade standard. Three floors, on upper and lower levels are being refurbished and fully fitted out as show suites.
The Downtown precinct has by and large followed the overall trend within the prime end of the market, where supply has tightened further from the already low 4.9% recorded in 2014 to 3.1% in 2015.