APPD Market Report Article

Auckland

May 31, 2022

1.0%

NZD 521

Growth
Slowing

Uneven spread of occupancy across the CBD

  • In 2H21, overall vacancy in the CBD office increased from 10.6% to 11.6%, suggesting an additional 12,300 sqm of available space in the leasing market. However, an uneven spread of occupancy across the CBD on a building-by-building basis was observed, with ongoing divergences across the grade and location spectrums.
  • In comparison by grade, prime vacancy was recorded at 8.5% while secondary vacancy was recorded at 14.6%. The top one-third of Grade B properties performed relatively well; the lower two-thirds of such buildings do not appear to perform as well, especially if the building is land-locked and/or has access issues. Grade C properties continued to remain vacant, if not refurbished or repurposed.

Strong new supply in the pipeline

  • No new buildings were completed in 1Q21. However, the Finance Minister formally opened the 15,000 sqm 6-star rated NZD 329 million Manson’s TCLM building at 136 Fanshawe Street in the CBD in March 2022. This building has been practically finished for seven months and is fully tenanted.
  • There is also a strong supply pipeline, with most builds being prime quality; around 30 projects are underway. One Mills Lane is the most notable one. Another notable development is the refurbishment at One Queen Street. 3-15 Albert (new build), 35 Graham Street (refurbishment) and 87 Alberts (refurbishment) are other notable developments.

Prime yields remain steady in 1Q22

  • Prime net yields remain steady at 4.69%, while secondary net yields increased slightly, from 5.75% in 4Q21 to 5.88% in 1Q22. The rising interest rate environment is expected to gradually have its impact on yields towards the end of 2022 and into 2023. Border restrictions limited offshore investment in 2021; however, this is expected to reverse given the easing of travel restrictions.
  • A notable transaction was announced in 1Q22: the proposed partnership between Precinct Property and Singapore-based GIC, which is subject to OIO approval. When it settles, GIC will initially acquire five assets from Precinct’s existing portfolio with two located in Auckland and three in Wellington, totalling NZD 590 million. The fund has the ability to grow to around NZD 1 billion over time.

Outlook: New prime buildings expected to set new rental benchmarks

  • Despite the interruptions from lockdowns, market sentiment shows that the office environment remains integral to corporate strategy. Demand is expected to remain high for premium buildings in good locations, with pressure on secondary buildings of lesser quality offerings. New prime buildings coming onboard in 2023 are expected to set new rental benchmarks.
  • Between April and June 2022, the Government has announced a reduction in public transport costs. One of the motives of this policy is to encourage employees to come back to the office, which will increase foot traffic among office buildings and retail outlets in the CBD. As Omicron cases start to decrease, it is expected that this combination will continue to drive the demand for CBD office space.

Note: Auckland Office refers to Auckland's CBD and Viaduct Harbour office markets.

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