Almost a quarter of city fringe office space lost

The Xero building in St George's Bay Rd, Parnell.

The Auckland CBD fringe precincts of Grafton, Newton, College Hill, Parnell and Newmarket have lost almost a quarter of their total office accommodation over the past decade, Bayleys Research's latest overview of Auckland's metropolitan office markets has revealed.

Bayleys Research senior analyst Goran Ujdur says this has been the result of better uses being found for properties containing typically poorer quality and dated C and D grade office buildings.

"In the majority of cases the recycling of these sites has taken the form of high density residentially accommodation. This has resulted in a healthy regeneration of parts of central Auckland in need of rejuvenation and is in line with Auckland Council's plan to encourage more mixed use development in metropolitan areas outside of the CBD with good public transport connections."

As a result, Ujdur says the total area of office accommodation surveyed annually by Bayleys Research in these five main Auckland city fringe office precincts has declined from 505,000 sq m in 2009 to just over 391,000 sq m currently.

"However, this trend now appears to be showing signs of reversing with the development of better quality new office space, particularly in the high profile suburbs of Parnell and Newmarket. With office vacancy in Auckland's CBD at an historically low level, occupier demand for commercial accommodation is increasingly spilling over into CBD fringe and suburban locations."

Bayleys' Auckland city & fringe director Alan Haydock says larger businesses in the IT and utility sectors are at the forefront of the push into amenity rich city fringe areas. Recent examples include Xero's centralisation of its Auckland operations to new premises in St George's Bay Rd, Parnell and Mercury Energy's recently completed head office building in Newmarket following on from Watercare Services relocation into another new nearby development.

He says: "This trend is expected to continue as competition to attract and retain key talent increases and organisations look more closely at locational attributes and high spec work environments as draw-cards.

"Improved transport links to Parnell, including the opening of the railway station, are attracting greater occupier interest. Equally, Newmarket's good public transport connections and proximity to amenities such as the Domain and a major redevelopment of Westfield's 277 shopping mall is continuing to attract tenant interest. Prime office rents in both markets have recorded further growth over the past 12 months, a trend we expect will continue into 2020.

"Longer term, Auckland Transport's plans to significantly increase the frequency and capacity of the rail network once the City Rail loop is completed should further enhance the desirability of fringe city locations as work destinations."

Haydock says Auckland's largest office developer, Mansons TCLM, has undertaken a number of successful projects in Parnell, Newmarket and College Hill over the past few years and is likely to continue to remain active in these areas, as well as in the CBD.

In Parnell, the owners of 24 Balfour Rd, Parnell (Whitecliffe College of Art and Design) have engaged Ferron Hay Architects to come up with plans to convert it into upmarket office space. Callaghan Innovations which also occupies space at 24 Balfour Road will be moving to the nearby Textile Centre.

Bayleys Research's latest city fringe office vacancy survey shows overall metropolitan office vacancies have recorded little change over the past 12 months, currently standing at 9.2 per cent compared to 9.3 per cent a year earlier. Vacancy levels ranged from 5.2 per cent in Parnell to 12.7 per cent in Grafton.

"Despite the general lack of movement in the overall vacancy rate, prime vacancies remain very tight, with little, if any, prime space of scale (more than 1,000 sq m) available for occupation," says Ujdur. "Unoccupied space mostly comprises smaller pockets of lesser quality, older style office accommodation."

Haydock says city fringe investment property remains in high demand, although listings are getting tighter.

"Supply shortages at the prime end of the market have resulted in investors looking more closely at B grade stock with potential for higher and better uses. Syndication operators and local private investors currently dominate investment activity although a growing amount of off-shore capital, unable to secure CBD assets, is now seriously looking at fringe city locations.

"The recent drop in the OCR, with the likelihood of further decreases, is resulting in more investors moving out of cash and back into property in search of income yield."