KEY POINTS:
Results just released from the latest commercial office surveys by Bayleys Research show that vacancy rates in Auckland's central business district, the city fringe and the southern corridor precincts are edging towards record lows.
Prime office space remains in tight supply in Auckland's CBD, where the overall vacancy
rate is still running at a sub-10 per cent level, and also in the Southern Corridor from Greenlane to Penrose, despite continued construction in key office precincts, says Gerald Rundle, manager of Bayleys Research.
Preference by clients for quality office space in the Auckland CBD remains a feature of the market, says Rundle.
"Prime office space, which accounts for approximately 30 per cent of the total amount of office space in the CBD, continues to lead the market with a vacancy rate of just 3.5 per cent. Secondary office space vacancy rate has consolidated on a decrease in the vacancy rate recorded six months ago, and is just under 12 per cent.
"The overall Auckland central business district office vacancy rate is now at 9.6 per cent compared with a 9.5 per cent vacancy rate recorded in Bayleys Research's mid-year survey."
Rundle says the generally low vacancy rates reflect years of strong economic activity and business growth in the CBD.
Comprehensive information on the Auckland office market has also been gathered by Bayleys Research through the monitoring of nine individual precincts within the CBD. "This helps to determine if there are any tenant preferences or movements within specific areas of the CBD," says Rundle.
The latest analysis shows that the downtown precinct, which runs from Victoria St in the south to Quay St in the north, and is bounded by Princes St to the east and Albert St to the west, is still one of the most preferred areas.
This is exemplified by the continued strong leasing activity over the last six months in this precinct, resulting in a 2.3 percentage point decrease in the vacancy rate.
Rundle says that legal and other associated service practices provide the largest number of tenants and occupy much of the net lettable area within the downtown precinct.
The Viaduct precinct also continues to be a highly sought-after location, with its latest vacancy rate of 6 per cent being the lowest vacancy rate recorded for the nine precincts monitored. Rundle says the Viaduct has experienced a large increase in its lettable area during the past few years, with a number of design-build and multi-tenant buildings being developed there.
"While the total floor area within the Viaduct has increased by about 32,000 sq m of A-grade space in just five years, robust leasing activity has provided sufficient absorption to keep vacancy rates at low levels," he says.
"The preference for quality space continues unabated and this is recognised by an increasing number of owners of older office space undertaking refurbishment or redevelopment in order to attract tenants."
He says an example of this is the building at 92 Albert St that was formerly occupied by law firm Simpson Grierson and which was developed as part of the Finance Centre in the mid-1980s. "This building has undergone extensive refurbishment over the last year and it has been successful in attracting tenants."
Outside the Auckland CBD, the overall office vacancy rate in the southern corridor has reached a record low of 4.5 per cent.
Bayleys Research analyst Chris Dibble attributes a significant decrease in the vacancy rate, from the 7.6 per cent recorded in early 2007, to vigorous leasing activity.
"One of the market dynamics that has evolved in the southern corridor office market over the last few years is the construction of new office space outpacing leasing activity," says Dibble. "This is then followed by a slowdown in construction and a subsequent decrease in vacant space the following year.
"With the continual upgrading of the precinct through the construction of high-quality buildings, along with relatively cheaper rental and occupancy rates than the CBD, the southern corridor should continue to be a popular office precinct with lower than average vacancy levels."
Similar to the southern corridor, the city fringe precinct has once again proven a popular location for tenants, with a good level of leasing activity resulting in a record low office vacancy rate of 8 per cent. The Auckland city fringe office market encompasses Parnell, Newmarket, Grafton, Newton and College Hill.
While the lower vacancy rates have generally been driven by demand for quality space, the city fringe vacancy survey has recorded a slight increase in A-grade space during the past year.
Dibble says this increase is a result of recently completed A-grade buildings in Newmarket and Grafton that have not yet been fully tenanted.
"Absorption of this space has been strong, with a number of the floors already occupied.
"While there are still pockets of A-grade space available, given the current market conditions, we anticipate this space will be leased quickly."
Rundle says the ongoing preference for quality office space across all precincts, the limited availability of such space and the long lead-in times for construction projects will pose challenges for tenants considering a move from secondary to prime space.
"In some cases this may result in the tenants opting to stay in existing buildings, particularly if the landlord is prepared to upgrade their space."
