New Zealand Market Highlights:
- New record low CBD office vacancy rate squeezing tenants’ options
- Development activity rising, but not enough for the medium-term
- Offshore investors ramping up their activity
Tenants are finding current leasing market conditions challenging. This is a positive for landlords who will likely experience greater total returns from higher rents and firming yields in a bullish investment environment spurred on by low interest rates and strong offshore investor interest. Auckland prime office yields range between 5.50 per cent and 7.00 per cent, firming by an average 25 basis points in the past six months.
Auckland’s CBD office sector is facing strong tenant demand, a shortage of available office space and static net supply created from a development pipeline keeping pace with ongoing stock reduction from refurbishments and conversions. Highlighting how strong demand has become and the lack of available space is the new record low Auckland CBD vacancy rate of 5.2 per cent (75,000sqm of vacant space) in the December 2018 survey. Total stock is at 1.3 million sqm. The 20-year average vacancy rate is 10.2 per cent. Current market conditions exacerbate the pressure on tenants who are already finding it challenging to source suitable accommodation.