Vacancy decreases across most precincts

• The vacancy survey for 2H22 shows an overall vacancy decrease from 11.6% to 10.8%, suggesting an additional 9,190 sqm of space being leased. This vacancy comprises the CBD Core and Viaduct. For CBD Core, vacancy decreased from 13.9% to 12.9%, while for Viaduct, vacancy increased marginally from 3.9% to 4.0%.
• Occupancy in properties located near the waterfront continue to be higher than properties located further up Queen Street. In comparison by grade, prime vacancy was recorded at 5.4% while secondary vacancy was recorded at 16.3%, a difference of 10.9%, as compared to a difference of 10.0% for the first half of 2022.

Significant new supply progresses

• Significant new supply progresses in development. Precinct’s Wynyard Quarter Innovation Project’s final phase includes three buildings – 117 Pakenham Street (8,700 sqm), 124 Halsey Street (9,700 sqm) and 126 Halsey Street (The Flower Building). Beca will lease 14,000 sqm across five floors at Precinct’s future development at 124 Halsey Street, with an expected completion in 2025.
• Other notable prime developments which are expected to complete during the next two years are 1 Queen Street (14,300 sqm) and 50 Albert (25,000 sqm).

Demand increasing for legitimate value-add opportunities

• In 4Q22, average net prime rents increased by NZD 5 per sqm to NZD 548 per sqm per annum, while average net secondary rents were unchanged at NZD 251 per sqm. This maintained the widening trend between prime and secondary rents. Upper-end rents for premium Auckland office buildings stood at NZD 800 per sqm per annum, and are expected to increase further by end-2023 to NZD 830 per sqm per annum.
• Average net prime yields softened by 13 bps with average net secondary yields softening by 38 bps. The emerging trend reflects secondary yields being impacted more than prime, with secondary yields softening 25-50 bps and prime softening by 12.5 bps.

Outlook: Mixed sentiment in times of uncertain economic conditions

• Similar to other office markets across the Asia Pacific region, the Auckland CBD office market has had mixed sentiment during 2022, with uncertain economic conditions slowing expansionary leasing for many occupiers. However, with vacancy now decreasing, performance is bifurcated and in favour of best-in-class assets. This trend is expected to continue at least for the next few years.
• Moving forward, embracing hybrid working will be key to supporting organisational agility and workforce capability. Organisations are expected to transition toward digital solutions that ‘fit and flex’ according to their needs, and owners of office properties will be expected to provide spaces which fit these needs.