Commercial rents up as property supply tightens

JOHN ANTHONY
Last updated 05:00 14/07/2014

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A lack of office space in New Zealand's biggest cities is driving up commercial rents but there are ways for businesses to lessen the burden.

Landlords are hiking up rents in Auckland, Wellington and Christchurch as they take advantage of a shortage in quality commercial vacancies, agents say.

Real estate company Jones Lang LaSalle spokesman Justin Kean said many businesses were moving from central business districts to more affordable CBD fringe.

"Right across the property market it's tighter today than we've seen it for many years," Kean said.

"There's not a lot of new supply coming online and there won't be for some time."

Because the global financial crisis was "so harsh and so severe" it made it difficult for property developers to secure finance from lenders, preventing many from building new offices, he said. "The problem with property is that it takes three years to build an office building."

He said New Zealand was in an "unusual property cycle" because businesses were growing and looking to relocate to more suitable premises but options were limited.

"If landlords have tenants who can't move anywhere, they simply tick the rents up."

Kean said if small and medium enterprises (SMEs) were struggling with rent they could look at how office space was used or consider relocating.

However, relocation costs, losing client contact and establishing the business in new premises could make it an expensive exercise, he said.

Shared office spaces were often touted as a solution for small businesses but in practise did not always work, Kean said. Privacy and conflicting space and personalities were just some hurdles to consider.

Grant Thornton adviser Eugene Sparrow, himself a landlord, said there were ways for tenants to get a better deal.

Most landlords would offer reduced rent in return for a longer term lease, he said.

"In most cases landlords would rather have that long-term tenure than have a high frequency turnover."

Businesses struggling with rent increases could approach the landlord with their accountant and have an "open book" discussion about the business' finances.

"It's actually sharing how you're going."

A landlord's rental demand should not be taken at face value and prospective tenants should seek an independent rent appraisal, he said.

"It's really important to spend the money and get your own independent appraiser. They'll tend to have a more pessimistic view as opposed to a more aggressive appraiser who's acting on behalf of the landlord," Sparrow said.

Auckland spokesman for real estate company CBRE Matt Hockey said Auckland rents were rising but developments in Victoria St and Wynyard Quarter would result in more stock hitting the market in 2016.

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"In Auckland the only way to save on rent would be to compromise quality, location and efficiency," Hockey said.

"The main message in Auckland is tenants need to be planning now."

CBRE Wellington spokesman Matt Hince said most vacancy options in the capital were low quality in "C and D grade stock. There is very little vacancy in A-grade and premium options," Hince said.

In Christchurch, CBRE spokesman Brynn Burrows said there was virtually no vacancy in the CBD.

"There is a large amount of space coming onto the market in early to late 2015 and that is set to continue in 2016."

- Stuff

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