APPD Market Report Article


May 26, 2024

Gavin Read, Head of Research, New Zealand


NZD 595


Prime rents continue to increase by 8.7% y-o-y

  • Average net Prime rents per month increased by 1.8% (NZD 12 per sqm) in the quarter, with the upper end of the range at NZD 830 per sqm and the lower end at NZD 550 per sqm. Rents across all other grades and precincts remained unchanged for the quarter. Grade A average monthly net rent stood at NZD 500 per sqm and Secondary CBD at NZD 283 per sqm.
  • The gap between upper- and lower-end rents narrowed slightly for Prime, but widened for other grades. The average rent for different grades continued to grow. In most cases, lower-end rents are expected to remain unchanged in the medium term, with growth in the upper rents expected each quarter.

Premium vacancy continues to decrease

  • For 2H23, the vacancy increased across most precincts and grades. Prime vacancy increased by 340 bps to 7.6%. Secondary vacancy increased by 80 bps to 19.7%. Most of the increase in the Prime vacancy came from Grade A properties, where vacancy increased to 9.5% from 4.6%.
  • On the other hand, the vacancy trend has turned positive again for premium office buildings, which showed a decrease of 130 bps to 1.6% from 2.8%. This illustrates an uptake of an additional 2,000 sqm of space and supports the ongoing sentiment of increasing demand for high-quality office spaces, especially those located near Auckland’s waterfront.

Yields remain unchanged as they are expected to have peaked

  • After recording transactions worth NZD 150.49 million during the last quarter, there were no significant transactions recorded for 1Q24. However, many investors have increased the number of their enquiries as they take the view that interest rates have peaked in New Zealand.
  • The last recorded notable transaction was the sale of 139 Pakenham Street (Mason Brothers Building) for NZD 50.3 million in December 2023. This was the first building completed in the Wynyard Quarter by Precinct Properties, which sold it to PAG Real Assets. This building has a WALE of 2.43 years, and the transaction had an equivalent yield of around 5.50%.

Outlook: Transactions expected to pick up mid-year

  • Increasingly, the number of potential purchasers attracted to open-market campaigns has increased, and we expect that parties are now largely beyond the changes to funding costs and have adjusted to the banks’ revision of LVR and Interest Cover requirements. As such, we expect transactions to increase in frequency into the year-end and 2025; however, they are coming off a very low base.
  • Occupiers and employers are providing positive market sentiment on the back of a desire for more collaborative, attractive workspaces, aiming to have staff in the office and working with the benefits of physical proximity. This continues to drive a flight to quality, with a notable divergence in rent levels and vacancies in terms of Prime and Secondary office buildings.

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

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