Vacancy rates - same same but different

Availability of office and retail space in Auckland and Wellington’s central business districts (CBD) is markedly different – but the trend is a continuing one.
According to the latest findings in Colliers International’s Research Report released next Friday, office vacancy in Auckland reached a new record low of 5.8%, while Wellington’s vacancy rate remained steady at just over 11%. The opposite was true for the retail sector with vacancy increasing in Auckland to 3.9% and decreasing in Wellington to 7.3%,
Chris Dibble, director of research and consulting at Colliers International says Auckland’s CBD office vacancy has been in a steady decline for the past three years. 

“Less than 84,000sqm of office space is currently available in the CBD - the lowest since Colliers’ records began in the mid-1990s.

“Leasing in Auckland has been strong for prime office space (premium and A grade buildings), but this has been eclipsed by activity in the secondary sector (B-grade buildings and lower).
“The lack of prime space, with vacancy of just 1.2%, has left many tenants searching for space in lower grade buildings. This has seen secondary vacant space reduce to less than 77,500sqm - another record low”.

Current development activity has risen in Auckland and a wave of new developments, primarily in the Wynyard and Victoria Quarter precincts, will provide the occupier market with more options in the short term says Dibble.

“One of the most recent examples completed is Manson TCLM’s building on Victoria Street West which will house NZME and Meredith Connell. There is 3,100sqm of office space still available to lease.”

Developments underway or scheduled for completion over the next five years in Auckland CBD are expected to contribute an additional 167,000 sqm of office space. Much of the previously uncommitted space is being leased before completion.

Dibble says the long anticipated addition to Auckland’s CBD – and what will be the leader of a select group of high-rise office towers – is Precinct Properties development for PwC.

“The 39,000 sqm of new premium office space from this development will mean a number of existing and new CBD office tenants move to the tower in the renamed Commercial Bay precinct. 

“The space left behind from those tenants will provide much needed leasing alternatives for new tenants into the CBD.

“The forecast rise in office space available will be met with a significant amount of pent-up demand, limiting the rise in office space that may eventually become available.”

 Under current market conditions, Colliers forecasts overall vacancy to lift to 7.4% by mid-2020. This is well below the long-term average of 11.4%, providing limited breathing room for tenants looking to escape recent rampant rental rate rises as demand outweighs supply.

In Wellington, tenant churn saw leasing activity rise but the vacancy rate remain steady at 11.7% at the end of 2015 compared to 11.2% mid-year. 

The Wellington Accommodation Project (WAP), looking at optimising government department space in the region, is forecast to increase the amount of secondary office space available over the next few years. The completion of the second tranche of WAP is expected to provide more leasing opportunities soon.

A new office building at 20 Customhouse Quay has been committed to by Deloitte and IAG for 2017 as well as a new building at site 10 Kumutoto for PwC due for completion in 2018. Co-operative Bank and another publically undisclosed tenant have also signed up to the PwC Centre. Limited space in the buildings remain available for lease. 

Dibble says like Auckland, there will be a rise in office space available as tenants decant and uncommitted space in the new buildings remain available.

“More than 90% of current vacant space is low quality which may limit absorption rates until 2017 as tenants look for higher quality space. Landlords currently refurbishing are experiencing the greatest levels of enquiry in a market with limited high grade options.

“Our current forecasts indicate overall vacancy in Wellington’s CBD could rise to almost 14% by late 2017/early 2018 due to public and private sector changes. Although average prime rents are expected to rise given the new developments, the growth rates in other premises are likely to remain moderate.”

Wellington’s retail property sector revival continued over the second half of 2015 with the vacancy rate reducing to 7.3% from 8.3% in the middle of last year. Lambton Quay’s and especially Willis Street’s retail leasing activity were the standouts, with vacant space halving in just six months.  

Wellington’s retail sector has firmly turned the corner as new entrants to the market keep the sector buzzing, says Dibble.
“David Jones is considered the key catalyst in this turn-around in confidence.”

In Auckland, retail vacancy edged up to 3.9% at the end of 2015 compared to 2.4% in June 2015. 

According to the Collier’s report, retail leasing activity in the CBD was busy with a range of new leases primarily in fashion and pharmacy sectors. However, it highlights that limited new development options has left vacancy flat over the last six months at 2.5%. 

Precinct Properties’ development on the lower levels of the new PwC Tower is expected to provide the opportunity for approximately 100 retailers across 18,000sqm.

Further south, one of the newest additions to the mid-CBD will be The Warehouse who are opening a new store in the Atrium on Elliot. 

Dibble says the mid-CBD precinct is expected to receive a lift in pedestrian flow in the future with the Convention Centre, City Rail Link Aotea station and the proposed Auckland NDG Centre.

“Outside of the Auckland CBD, demand for retail space has been mixed. Outer CBD Auckland retail vacancy increased to 4.2% from 2.4% between June and December last year.

“Kiwi Property, New Zealand’s largest listed property company, recently announced international clothing retailers H&M and Zara will occupy space at Sylvia Park. This indicates a noteworthy appetite for suburban retail, but only in the right locations. This is exemplified by the Auckland Shopping Centre vacancy which increased slightly to 1.3% in December 2015, primarily due to central Auckland City vacancies. 

“Demand for space in the suburban shopping centres remains high, especially out west. One key example is Stride Property’s recently completed and fully leased NorthWest Shopping Centre at Westgate. Further development has been announced by Stride. 

“Pent-up demand for West Auckland retail space is showcased by the neighbouring large format retail centre development known as Zone 7 purchased by Kiwi Income in late 2015 for $82.5 million. The 25,500sqm development will house a number of well-known national brands such as Harvey Norman, Briscoes, Rebel Sport, Freedom and Warehouse Stationery.”

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