Prime Auckland office space shrinks
Prime office space in Auckland is at the lowest level for years and could be compared to the size of a football field, commercial real estate consultants say.
Vacancy rates for premium quality space in the Auckland CBD have shrunk to a slim 0.6 per cent and A-grade space is only slightly more available at a record low 2.2 per cent, according to JLL.
Overall vacancy rates have slid to 7.9 per cent, down from 10.5 per cent a year earlier.
JLL's national director of research, Justin Kean, said vacancy levels had reached their lowest level in the 26-year history of the consultancy. They were unlikely to improve for several years.
However, there was plenty of room in the outer fringes of the city, and he predicted many businesses would move there as the shortage sent city office rents rising.
"When the Auckland office market sees vacancy fall below 10 per cent, this tends to indicate that the conditions are tightening for tenants and landlords alike," Kean said.
Chris Dibble, national research manager for Colliers, agreed the shortage of good office space in central Auckland was becoming critical.
The amount of prime office space left in Auckland was less than the size of a football pitch, which would accommodate only about half a per cent of the CBD's current work force, he estimated.
"You can get 500 people in that area," he said.
It was bad news for businesses that wanted shiny new workplaces to keep talent.
Auckland had a record high work-force participation, but not enough space at the prime end of the sector to house them.
"It's not the developers' fault, but we really need them [to start planning]," Dibble said, noting that there had been plenty of focus on the residential housing shortage, but not on commercial real estate.
Consultants say businesses have two options: wait for new supply or opt to refurbish secondary office space on the CDB "fringe'', where vacancy rates are about 11 per cent.
The only new office buildings scheduled to open soon are a 9000 square metre spec building being built by Goodman Group behind Fonterra's new headquarters in the Wynyard Quarter, and Mansons TCLM's 18,600sqm project in Victoria St West.
Neither is due for completion before 2015-2016.
"Their doors are almost being beaten down by tenants," Kean said.
There was also potential for older inner-city buildings to be upgraded, as well as Precinct Properties' redevelopment of the Downtown centre, due in 2019.
Precinct also has a long-term plan to develop a 1.1 hectare commercial office area in the Wynyard Quarter.
JLL's national director of markets, Mark Grant, said his advice to tenants considering the city fringe was to start planning. In some cases, they would be dealing with lease expiries that were as much as two years in advance.
"Developers looking to bring refurbished space into the market are taking a development risk," Grant said.
"Tenants can mitigate that risk and ensure the refurbishment takes place by pre-committing to space in advance, creating a win-win scenario for both parties."
This was the best approach "in a market where options are quickly becoming a thing of the past", he said.
Dibble said the situation did have an upside.
"It's good for landlords and for investors, who haven't seen those metrics for a while."
CBD buildings which have potential to be upgraded (JLL)
* The former BNZ building at 125 Queen St which has just been sold (17,400sqm)
* The former Tower Insurance building at 22 Fanshawe St (7500sqm)
* A lot of available space at Otago House, 385 Queen St.