APPD Market Report Article
AucklandSeptember 4, 2023
Gavin Read, Head of Research, New Zealand
Prime vacancy decreases while secondary vacancy increases
- For 2Q23, overall vacancy in CBD office increased from 10.8% to 11.8%, which comprises the CBD Core and Viaduct. For CBD Core, vacancy increased from 12.9% to 13.5%, while for the Viaduct, vacancy increased from 4.0% to 6.3%.
- However, analysis of grades shows a different picture. Prime vacancies within the Auckland Core CBD decreased by 166 bps to 8.1% (from 9.7%). This represents an uptake of additional space of around 9,200 sqm, also illustrated by the observation that 10 out of the 21 prime buildings in this precinct have 0% vacancy. On the other hand, secondary vacancy increased from 16.3% to 18.8%.
A range of projects progress through various stages
- In addition to the Precinct Properties’ developments at 1 Queen Street and Wynyard Quarter, notable prime developments include 50 Albert Street (28,000 sqm), Mansons’ Wynyard development (6,711 sqm), 87 Albert Street/16 Kingston Street (14,660 sqm) and 2-16 Wakefield Street (12,000 sqm).
- In addition, secondary (upper end of Grade B) developments include 48 Greys Avenue, 69-105 & 83 Customs Street, 2-8 Chancery Street, 280 Queen Street and 164-188 Beaumont Street. When completed, this substantial pipeline is expected to create further challenges for landlords to attract and retain tenants within lower grade properties.
Secondary yields soften more as compared with prime yields
- Average net prime yields softened by 19 bps, and average net secondary yields softened by 25 bps. The upper end of prime yields pushed out by 13 bps, while the same for secondary yields pushed out further, by 25 bps, in what has been a trend across New Zealand’s markets since 2022.
- Yields are expected to increase by 12 bps for primary to reach 5.75%, and 17 bps for secondary to 7.73%, by year-end. There was one significant (above NZD 5 million) transaction during 2Q23—the sale of 124 Vincent Street, a 4,342-sqm office building, for NZD 20.2 million with a WALT of 3.90 years.
Outlook: Flight to quality continues to be a trend
- The flight to quality continues, with the divergence in both rents and vacancies widening between prime and secondary properties. This has seen the rising rental narrative for prime assets ahead of secondary, which is forecast to continue on through this year.
- There is promising occupancy improvement in the CBD, with leasing options limited in preferred locations. By grades, we are forecasting prime vacancy to drop to 4.9% by 2025, and secondary vacancy to be around 18.7% for the same period.