Competition is fierce for office space in the CBD
When plans for Commercial Bay were initially announced, there was a bit of trepidation on behalf of Auckland CBD landlords fearing that this could be a major disrupter to current tenancies. After all, the project had 39-levels, and promised 39,000m² of premium office space that top-tier tenants would covet.
This was more than 1 year’s net absorption for the CBD in a single building. As they started the building process, indeed, major companies and law firms signed on quickly to occupy the new spaces. (Tenants in the tower now include PwC, Chapman Tripp, MinterEllisonRuddWatts, DLA Piper, Marsh and Spaces). It was anticipated that the departure of companies from current buildings would create an abundance of empty offices in the central city which would result in a tenant’s market and a drop in rental rates.
As it turns out, this was certainly not the case. In general, office space previously occupied by these businesses has already been leased to different parties ready to move in as soon as possible. What does this say about the current office market that these filled so quickly? What can we anticipate in the way of rent increases as demand continues to rise?
How much is too much?
There is certainly a bit of cache to setting up shop in the CBD. Companies are willing to pay a premium for addresses that put them in the heart of the action. The Auckland CBD vacancy rate has continued to decrease every six months over the last 18 months from 6.0% to 5.8% to 5.3% to date. In contrast the Metropolitan market at-large has increased noticeably every six months from 6.5% to 7.8% now.
The Southern Corridor still remains the area of Auckland with the largest vacancy - up to 10.8%, the highest in eight years. Major blue chip tenants such as ANZ, Mercury and Genesis are moving away from the Southern Corridor in favour of locations like the Wynyard Quarter and Sylvia Park. These relocations have created an outflow of 18,096m² or, four key tenants who occupy on average 4,524m² each. Further, other companies are reducing in size therefore lessening their space requirements.
Is the CBD running out of office space?
More and more businesses are making premises decisions based around the proximity to public transport and they are seeking quality office space that will attract and retain staff while overall vacancy in the CBD is 5.3% and the premium and A-grade office space has dropped to 2.0% and 2.5% respectively, close to historic lows. CBD vacancy has dropped consistently every six months for the past 18 months.
We continue to see businesses grappling with an ever-evolving business landscape. The implication of this constant change is that businesses want flexibility in their future premises solutions if they are going to commit to a long -term lease. From Wynyard Quarter to Newmarket, we are seeing tenants missing out on desired spaces as the demand for prime grade and A-grade is greater than supply.
Where are companies hunting for office space beyond the CBD?
Sylvia Park is a super hot location in the Southern Corridor at the moment. Tenants are looking to this area as it boasts great amenities such as retail and public transport options which are all things employees will be pleased about. When businesses want to ensure that staff are aboard for the long-term and that they can attract the best of the best they recognise that it is critical that office environments are places people want to be. Sylvia Park is really the only place that can offer this long list of amenities that companies are seeking.
There has been some activity in the realm of office leasing near the Auckland Airport but most of the businesses who have selected this region specifically require access to airport-based facilities. On the North Shore, Smales Farm and Albany Mall are attractive because of great public transport and many local conveniences. On the City Fringe, Newmarket and Parnell are seeing an uptake in interest as the CBD becomes increasingly higher priced for what little space is available.
How can companies become more competitive when seeking space in high-demand areas?
We are continuing to see a significant focus in the CBD and surrounding suburbs with the area from Wynyard Quarter to Newmarket being a ‘hot’ zone so companies need to have a strategy in place when seeking the right space. More than anytime in the past, management needs to allow for more time to hunt. When the perfect property presents itself, they need to have the agility to move quickly with legal paperwork and internal approvals. This could make you more attractive as a tenant and edge out other parties who may be interested. Engage an office leasing expert as soon as a move is on your radar so you have someone with their finger on the pulse of the market working hard on your behalf to tick as many boxes as possible on your office space wish list.
What can landlords do if they have office space languishing in a less popular area?
This is creating an interesting crossroads for owners of these and other vacant spaces. Would now be the ideal time to invest in improvements to attract new tenants? Infusing some cash into office spaces that may have grown tired over time, could be a really smart move. A strategy of getting the preparation right will put you at the head of the pack with tenants.