Chris Dibble: Lack of office space sparks development

Private company Mansons TCLM has been the most prolific developer of office space in the CBD and city fringe in the last decade. Photo / Brett Phibbs

Opinion

The amount of vacant office space in the Auckland CBD has been shrinking for the past three years as the economy grows, business confidence reaches record highs and supply stays still.

The limited amount of available office space in Auckland's CBD reached all-time lows at the beginning of the year. There was around 4000sq m of prime vacant space and 100,000sq m of secondary space.

The critical shortage of prime office space led to a number of tenants staying put or searching for suitable office accommodation in the fringes of the city. The limited number of options for tenants has led to rents increasing by up to 5 per cent a year over the past year and incentives reducing to between 5 per cent and 10 per cent.

To take advantage of the demand, developers have ramped up their activity significantly, with almost 100,000sq m of space being refurbished and developed.

The amount of potential pipeline supply and developments currently under way represent 18 per cent of overall supply or 56 per cent of prime supply. This is higher than in Sydney at 12 per cent and 24 per cent respectively.

In the last decade, private company Mansons TCLM has been the most prolific developer of office space in the CBD and city fringe, developing 152,000sq m.

Mansons have recently announced they are looking to develop their second high-rise office tower in the CBD on the existing NZME. site that will be vacated by middle to late this year. Initial target dates for completion of the tallest office tower in the CBD comprising 40,000sq m is for early 2019.

Between 2015 and 2020, more than 168,000sq m of office space is forecast to be developed in the Auckland CBD and adjoining Victoria Quarter including Fonterra's HQ, VXV3, 151 Victoria St West, Precinct Properties' Downtown Centre and Wynyard Quarter redevelopments, Manson's CBD Tower and other smaller developments aggregating to around 20,000sq m.

The transition of tenants to new buildings over the next decade will see a rise in the vacancy rate from its cyclical lows, although the overall rates will not reach the vacancy rates seen in the late 1990s. This is due to the unprecedented pent-up demand for office space which will insulate the market.

As a comparison of development cycle time frames over the past two decades, the Auckland CBD grew by 100,000sq m between 1992 and 2000, 2001 and 2006 and 2007 and 2014.

Chris Dibble is national research manager at Colliers International in Auckland.