APPD Market Report Article


February 22, 2024

Gavin Read, Head of Research, New Zealand


NZD 589


Prime rents continue to increase

  • Average net Prime rents increased by 1.3% (+NZD 8 per sqm) for the quarter to NZD 589 per sqm per year. This figure constitutes average net rents for premium offices at NZD 670 per sqm per year and for Grade A offices at NZD 493 per sqm per year. This signifies a 7.5% y-o-y increase in Prime rents.
  • There has been an increase in Secondary rents in 4Q23 for a few reasons. First, the lagging effect of overall rent increases has now impacted Secondary buildings. Second, some owners have tried to reposition assets through refurbishments. Third, there has been demand for high-quality properties from occupiers who want to move from the fringe to the CBD but cannot afford the Prime rents.

Vacancy increases across most precincts and grades

  • Vacancy increased across most precincts and grades for 4Q23. Prime vacancy increased by 340 bps to 7.6%. Secondary vacancy increased by 80 bps to 19.7%. Most of the increase in Prime vacancy came from Grade A properties, where vacancy increased to 9.5% from 4.6%. Prime absorption stood at -21,600 sqm while Secondary absorption stood at -3,600 sqm.
  • On the other hand, the vacancy trend has been positive again for premium office buildings, which showed a decrease of 130 bps to 1.6% from 2.8%. This illustrates the 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 the waterfront.

Evidence of transactions begins to build

  • Average net Prime yields softened marginally by 6 bps to reach 5.94%. The upper-end increased by 13 bps, while the lower-end stayed at 6.63%, as the lower-end is reaching its peak in the cycle.
  • The overall Auckland office market recorded sales worth NZD 147.65 million during 4Q23, of which NZD 89.65 million is located in the CBD. A notable transaction was the sale of 32-34 Mahuhu Crescent, a 6,705-sqm, 100% NBS office building with a WALE of four years, for NZD 19.65 million.

Outlook: Secondary vacancy expected to increase further

  • In contrast to the wider economic environment, the development pipeline for Auckland CBD is relatively substantial and will likely continue to pull occupiers out of Secondary properties. This should further compound current Secondary vacancy issues and suppress rent growth for these buildings.
  • While there are currently no regulatory requirements for Green Star and NABERS ratings for commercial real estate in New Zealand, there is an increasing market-led push for ESG considerations. Since 2019, 22 buildings have gained certification, with the majority of new builds and key refurbishments targeting Green Star and NABERS ratings.

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

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