CBD office vacancy low but Viaduct spikes

Viaduct Harbour's vacancy has jumped to 10.6 per cent - the highest in the CBD. Photo / Supplied

Vacancy levels within the Auckland CBD office market remain at a lower level than this time last year despite a significant relocation of tenants to new and upgraded buildings over the past 12 months.

Bayleys Research's latest CBD office accommodation survey shows tenant uptake has generally kept pace with increased supply, says Bayleys Research manager Ian Little.

"At 6.1 per cent, the overall vacancy rate covering all grades of CBD office premises is up on the mid-year low of 5.2 per cent, but down when compared with the January 2017 total of 6.25 per cent.

"The last 12 months or so have seen some major tenant movements as businesses have shifted to new headquarters. Datacom, Bayleys, Auckland Transport, IBM and Mayne Wetherall have, between them, relocated into over 34,000sq m of new or refurbished space," Little adds.

"Generator, Auckland's largest co-working office operator, has also absorbed over 6500sq m of space in a new building in the Innovation Precinct in the Wynyard Quarter creating new demand for prime office space within this rapidly expanding sector of the market. While this movement has, in some cases, left vacated CBD space to fill, the fact that staff have also been relocated from outside the CBD, coupled with continued business growth, means that the impact on vacancy has not been significant."

While the overall vacancy figure is little changed from early last year, the influence of new development has resulted in changes in the vacancy rates within the CBD's various precincts, says Little.

He says the Wynyard Quarter has experienced the most significant increase in office inventory over the last 12 months with Datacom House, Bayleys House and two properties within the Innovation Precinct, 12 Madden Street and Mason Bros, opening for business.

"All were fully leased upon completion, with the exception of one floor at Datacom House, and therefore vacancy within the precinct has increased by just 120 basis points to approximately 3.2 per cent despite the big increase in supply."

However, the neighbouring Viaduct Harbour precinct experienced a more significant vacancy jump from 7.5 per cent to 10.6 per cent, currently the highest in the CBD.

The main contributors to this were Bayleys' relocation from three large floors space at 4 Viaduct Harbour Ave, and the movement of Auckland Transport staff from temporary accommodation in the precinct to the refurbished ex Vodafone building at 85 Fanshawe St.

Britomart can claim the lowest CBD vacancy rate at just over one per cent. The city's largest precinct, Downtown, containing many of the CBD's high rise office towers and with an average vacancy rate in excess of 10 per cent over the last 10 years — is now sitting at just 4.4 per cent, down about one per cent on last year's figure, says Little.

In the year ahead, Bayleys' office leasing director Lloyd Budd expects little easing of supply pressure. This is contributing to the low vacancy rates, particularly for better quality premises, he says.

"Significant additions to the CBD's inventory at 34 and 46 Sale St (about 17,000sq m) will be substantially leased upon completion. While 46 Sale St's anchor tenant AA Insurance is now domiciled within the CBD and is leaving space to be backfilled, the other major tenants identified to date, Colmar Brunton and Vocus Communications, are relocating from outside the CBD.

"It is therefore likely to be 2019 before the development pipeline accelerates ahead of demand when the CBD's largest current development, Commercial Bay in the Downtown precinct, is scheduled for completion. In addition, the Wynyard Quarter will have 12,000sq m at 155/167 Fanshawe St, being developed by Mansons, coming on stream."

Budd sees scope for further significant development to be completed through 2020 and 2021 on Madden St; within the Wynyard Quarter; at 136 Fanshawe St and on the remaining undeveloped part of the former NZ Herald site at Mill's Lane.

In the immediate future, large contiguous floor options are limited to locations such as Building B in the Spark Campus, 4 Viaduct Harbour Ave and Datacom's former premises at 210 Federal St, he says.

"The current tight market conditions are set to prevail throughout 2018 and most of 2019 before a likely shift in the supply/demand balance in favour of tenants occurs towards the end of 2019."s