APPD Market Report Article

Auckland

August 26, 2022

Gavin Read, Head of Research, New Zealand

3.3%

NZD 533

Rents
Rising

Prime CBD buildings continue to gain traction amongst occupiers

  • JLL’s 1H22 vacancy survey results showed that overall vacancy increased marginally from 11.5% to 11.7%, suggesting only an additional 2,800 sqm remained available for lease. In comparison by grade, prime vacancy recorded at 6.3% while secondary vacancy recorded at 13.9%, a difference of 7.6%, as compared to a difference of 6.2% for the second half of 2021.
  • Occupancy improvement appears promising in the CBD, with leasing options limited in preferred locations. While there were no significant changes to vacancy rates for Grades C and D buildings, vacancy across all other grades decreased. JLL is forecasting prime vacancy levels to decrease by a further 0.6% by end-4Q22, with secondary vacancy levels to increase by circa 1.2% during the same period.

Strong new supply of prime buildings set to come online

  • The supply pipeline is strong, with most projects being prime-quality buildings. Examples of new builds that upon completion are expected to push rents higher for their precincts, are Wynyard Quarter Innovation Project and 50 Albert Street. 1 Mills Lane is another notable one, with 25,000 sqm of Grade A space to be completed by mid-2024.
  • Another notable development is the refurbishment at Deloitte Centre (1 Queen Street), a 6-star mixed-use development. When completed by mid-2023, it will have 14,300 sqm of Grade A office space. 3-15 Albert (15,000 sqm new build), 35 Graham Street (24,000 sqm refurbishment) and 87 Albert Street (14,500 sqm refurbishment) are further notable developments.

Rents for prime and secondary grade assets continue to grow

  • With prime office space experiencing low vacancy, and occupiers increasing demand for high-quality environments, inclusive of high Green Star and/or National Australian Built Environment Rating System (NABERS) ratings to assist with the occupiers meeting their individual ESG requirements, it is expected that as the developments are completed, there will be strong demand for these properties.
  • The divergence of prime and secondary grade rents continues to grow, with the upper end of prime rents increasing by NZD 20 per sqm to reach NZD 665 per sqm per annum, while the upper end of secondary is unchanged at NZD 290 per sqm per annum. Average net prime rents increased by 2.31% q-o-q to reach NZD 533 per sqm per annum.

Outlook: Demand expected to remain high for prime CBD buildings

  • JLL New Zealand’s Vertical Vacancy Review 1Q22 shows increasingly positive sentiment. Quality office spaces will likely remain key for occupiers as part of their strategy to retain and attract quality staff. With the borders now open, there is an expectation for offshore investment to increase along with the return to the workplace, which should see occupancy levels rise.
  • Embracing hybrid working environments will be key to supporting organisational agility and workforce capability. Organisations are likely to transition toward digital solutions that “fit and flex” according to their needs. Moreover, translating sustainability targets into credible action plans should have a real impact on commercial real estate, with the Auckland office market being no different.

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

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