Low vacancy rates in Wellington and Auckland office and retail sectors

A new commercial building - yet to be built - on Wellington's waterfront has been leased by PricewaterhouseCoopers.
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A new commercial building - yet to be built - on Wellington's waterfront has been leased by PricewaterhouseCoopers.

Office and retail rental space in New Zealand's two main centres is becoming scarce.

The latest research from Colliers International shows office vacancy in Auckland reached a new record low of 5.8 per cent, while Wellington's vacancy rate sits on 11.7 per cent.

The retail sector provides a similar outlook, with vacancy increasing in Auckland to 3.9 per cent and decreasing in Wellington to 7.3 per cent. 

Deloitte and IAG have leased floors in the new office building in Customhouse Quay.
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Deloitte and IAG have leased floors in the new office building in Customhouse Quay.

Colliers International research and consulting director Chris Dibble said tenant churn saw leasing activity rise, but the vacancy rate remained steady.

The Wellington Accommodation Project (WAP) - aimed at optimising government department space in the city - was forecast to increase the amount of secondary office space available over the next few years, he said.

The completion of the second tranche of the project was expected to provide more leasing opportunities soon, Dibble said.

On top of that, a number of new office buildings in the central city had been snapped up  - some wanting long-term leases.

Like Auckland, there would be a rise in office space available as tenants decant and uncommitted space in the new buildings remained available, Dibble said.

"More than 90 per cent of current vacant space is low quality which may limit absorption rates until 2017 as tenants look for higher quality space.

"Landlords currently refurbishing are experiencing the greatest levels of enquiry in a market with limited high grade options."

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Forecasts indicated overall vacancy in Wellington's CBD could rise to almost 14 per cent by late 2017 or early 2018, due to public and private sector changes, he said.

"Although average prime rents are expected to rise given the new developments, the growth rates in other premises are likely to remain moderate."

Wellington's retail property sector revival continued over the second half of 2015, with the vacancy rate reducing to 7.3 per cent from 8.3 per cent in the middle of 2015.

Lambton Quay and especially Willis Street retail leasing activity were the standouts, with vacant space halving in just six months.  

Wellington's retail sector had "firmly turned the corner", as new entrants to the market kept the sector buzzing, Dibble said.

"David Jones is considered the key catalyst in this turn-around in confidence."

In Auckland, retail vacancy edged up to 3.9 per cent at the end of 2015, compared to 2.4 per cent in June 2015. 

Retail leasing activity in the CBD was busy with a range of new leases primarily in fashion and pharmacy sectors, however, research highlighted that limited new development options had left vacancy flat over the last six months. 

Precinct Properties' development on the lower levels of the new PricewaterhouseCoopers Tower was expected to provide the opportunity for approximately 100 retailers across 18,000 square metres, Dibble said.

The mid-CBD precinct was expected to receive a lift in pedestrian flow in the future with the Convention Centre, City Rail Link Aotea station and the proposed Auckland NDG Centre, he said.

"Outside of the Auckland CBD, demand for retail space has been mixed. Outer CBD Auckland retail vacancy increased to 4.2 per cent from 2.4 per cent between June and December last year.

"Kiwi Property, New Zealand's largest listed property company, recently announced international clothing retailers H&M and Zara will occupy space at Sylvia Park," Dibble said.

"This indicates a noteworthy appetite for suburban retail, but only in the right locations. This is exemplified by the Auckland Shopping Centre vacancy which increased slightly to 1.3% in December 2015, primarily due to central Auckland City vacancies. 

"Demand for space in the suburban shopping centres remains high, especially out west."

An example was the fully-leased NorthWest Shopping Centre at Westgate.

Auckland's CBD office vacancy has been in a steady decline for the past three years, he said.

"Less than 84,000sqm of office space is currently available in the CBD - the lowest since Colliers' records began in the mid-1990s.

"Leasing in Auckland has been strong for prime office space, but this has been eclipsed by activity in the secondary sector," Dibble said. 

"The lack of prime space, with vacancy of just 1.2 per cent, has left many tenants searching for space in lower grade buildings."

 - Stuff

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