Office market outpaces other commercial property sectors

Office transactions hit $1.5 billion, outstripping industrial and retail

New Zealand’s office market is outpacing other commercial property sectors with exceptionally strong sales and record low vacancy rates, Colliers International research shows.

The Australia and New Zealand Capital Markets Investment Review found $1.5 billion of office transactions of $5 million or more took place in New Zealand in the fiscal year to June 2017.

That was higher than the $1b of retail property transactions of $5m or more, $869m of industrial property sales of $5m or more, and $98.6m of hotel transactions of $5m or more.

The provisional figures, compiled by Colliers International’s Research and Consulting team, show 56 office properties worth $5m or more changed hands in the last fiscal year.

Auckland takes the lead

Colliers International Capital Markets National Director Peter Herdson says Auckland’s office market is leading the way, with the metropolitan sector particularly buoyant.

“Last year we saw New Zealand’s largest ever office property transaction – and it wasn’t a landmark Auckland CBD office tower, but a metropolitan office complex,” he says.

“The Goodman-developed Millennium Business Centre on Great South Road, Greenlane, was sold to syndicators Oyster Group for a record $210 million.

“The deal, brokered by Colliers International’s Capital Markets team, shows demand for office properties outside Auckland’s CBD remains very strong.”

High-profile offices in demand

Colliers International Auckland Investment Sales Director Gareth Fraser says high-profile office buildings are incredibly attractive to both local and overseas buyers.

“Investors are particularly keen on offices with good lease terms, high occupancy rates and low capital expenditure costs,” he says.

“Demand is so strong that interested parties are struggling to find flagship properties to buy, which is leading many investors to buy developments off the plans.”

Fraser says low vacancy rates are continuing to drive demand.

Colliers International’s recent Auckland Metropolitan Office Research Report found only 6.3 per cent of office space outside the CBD was vacant – well below the 10-year average of 8.2 per cent.

Spillover effect boosts metropolitan market

Colliers International Research Manager Leo Lee says the biggest driving factor is the shortage of prime office space in the CBD.

“With record low office vacancy rates continuing, it is becoming hard for businesses to find quality affordable space in the central city,” he says.

“Spill over demand is driving strong growth in the metropolitan office market, particularly in areas close to good transport hubs and amenities.

“As a result, metropolitan vacancies rates remain low, while rents are rising.”

Changing tenant needs driving growth

Colliers International Auckland Leasing Director Matt Lamb says changing tenant needs are also helping to drive growth in the metropolitan market.

“An emergent culture of collaboration is driving demand for better-connected workplaces with contiguous floorplates, which are very hard to come by in the CBD.

“Companies are also looking to create efficiencies by housing all of their employees in one building, rather than across several floors or locations.”

Lamb cites the Millennium Business Centre and the Mercury building, under construction in Newmarket, as prime examples of these trends.

He says companies are also recognising the importance of quality workplaces in attracting and retaining staff.

“A new generation of workers is demanding a different mix of spaces and facilities, including shared spaces, break-out areas and better end of trip facilities.

“Metropolitan offices typically offer more space to meet these demands.”

Auckland's success story fuelling demand

Richard Kirke, International Sales Director at Colliers International, says Auckland’s underlying economic strength continues to be the driver of overall demand in the office market.

"Auckland is the economic powerhouse of New Zealand, contributing 37 per cent GDP,” he says.

“Growth in population and employment, as well as increased construction activity, brings new challenges, but will also help to keep vacancy low and rents buoyant over the next 12 months.”

Colliers International’s survey to March 2017 found only 108,000sq m of metropolitan office space was available in Auckland.

Some 29,300sq m of new prime office stock was completed in the six months to March 2017. A further 65,686sq m is under construction, while 29,200sq m is proposed for future development.

In-depth figures and further market commentary are available in the full Auckland Metropolitan Office Research Report and the Capital Markets Australia and New Zealand Investment Review.

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