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Auckland CBD Office Report | Second Half 2021

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  • Vacancy rates trended upwards in the six months to June 2021, but the rate of change has slowed since early 2020. This reflects the resilience of businesses and desirability of CBD space, a feature of the market set to continue despite latest lockdown disruptions. Overall vacancy increased to 10.4% in June from 8.4% six months earlier, with prime grade vacancy rising to 7.5%, primarily driven by occupiers decanting to new space. There remains a preference for quality office space as businesses become more staff-centric and battle to attract and retain staff in a constrained labour market. Deloitte and BNZ are two of the latest major leasing examples showcasing not only quality as a key feature of decision-making, but also the importance of location, opting for space within the CBD core in high quality refurbished/redevelopment premises.
  • Development activity has slowed following the delivery of a number of significant schemes over the last four years, The completion of these projects has been balanced by the removal of secondary grade buildings. As a result, the CBD has seen a significant increase in quality but not in inventory. Total prime grade stock has increased by 114,000 sqm over the four years to June, while the total inventory has increased by just 34,000 sqm. Ongoing demand for higher quality space has encouraged developers to push ahead with new projects, 93,052 sqm of development is currently underway and will complete within five years.
     
  • Market conditions over the past six months have resulted in a relatively flat net effective rent environment. Inflation and projected interest rate rises, as well as high asking rents for new premises are the catalysts driving expectations of increases in face rents, while incentives are likely to remain elevated given the development pipeline. Average prime rents have held at $512 / sqm.
     
  • Investor confidence in the sector rebounded strongly in early 2021, supported by an economic rebound and low interest rates. These factors will keep demand buoyant, and likely lift sentiment further as Covid-19 Alert Levels reduce. Competition will be elevated by the limited number of prime grade assets being brought to market. While current projected increases in interest rates would likely result in an easing of yields in the future, differing risk aversion levels, confidence in the economy, historically low interest rates, decision-making lags and limited high-yielding investment alternatives will likely mean a continuation of value growth and firming yields over the short term.

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Auckland CBD Office Report | Second Half 2021

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