A combination of strengthening leasing market and some significant refurbishment and conversion projects has resulted in a sharp fall in office vacancy across the Auckland City fringe business precincts over the past 12 months. The latest Bayleys Research vacancy survey shows overall vacancy has fallen to 13.7%, down from 16.8% in 2014 and a peak of 16.9% recorded in 2011 when the impact of the Global Financial Crisis and New Zealand’s recession was at its greatest. The decline in vacancy has been led by an uptake of higher quality space. A grade vacancy which stood at 13.8% in early 2014 has fallen to just below 7% due largely to a number of significant lettings to tenants such as Lottery NZ and BP New Zealand. Both organisations have taken space within the new Watercare Services building in Nuffield Street, Newmarket. Lottery NZ moved from B grade space in Grafton while BP relocated its head office from Wellington.
The fall in City Fringe vacancies comes despite negative absorption of 8,397m2 for the past 12 months. This reflects the reduction in overall office stock as increasing amounts of older space are either removed for refurbishment or recycled for other uses such as residential conversion.
The Bayleys Research 2015 survey shows City Fringe B grade vacancy down by over 1.5 percentage points to 14% and C grade vacancy falling by 2 percentage points to 20.1%.
Residential conversion of secondary space is gaining momentum with a number of projects either underway or proposed. Two of the most significant recorded in the latest survey are located within the Newton precinct, at 8 Hereford Street and 15 Hopetoun Street with the developer Tawera Group converting the buildings into high quality apartments. Both former anchor tenants at 8 Hereford Street – Telecom (now Spark) and Auckland Council – have moved to new or refurbished buildings within the CBD and once conversion works are complete by the developer the property will comprise approximately 115 apartments. At Hopetoun Street, the previous Baycorp House is being reconfigured into 91 apartments. These two schemes have resulted in the total office floor area of the fringe precincts falling by approximately 18,300m2 which has clearly been a significant contributor to the decline in vacancy rates.
Vacancy fell in four of the five city fringe precincts monitored by Bayleys Research: College Hill, Grafton, Newton and Newmarket. Only Parnell bucked the trend with a marginal increase in vacancies from 12.9% to 13.1%.
Following a number of years of strong take up and declining vacancies the North Shore office markets moved into a consolidation phase over the past 12 months. The latest Bayleys Research vacancy survey showed overall vacancies rising marginally to 7.8% from 7.1% a year earlier but still well down from the peak of 14% in 2011.
The flat vacancy picture masks a growing divergence between prime and secondary vacancies. Prime vacancies on the North Shore fell a further 1.2 percentage points to 5.8% while secondary vacancies rose 2.3 percentage points to 9.5%.