Office space for 6000 lies empty in Auckland

Auckland has enough empty office space for more than 6000 people and undeveloped commercial land values have halved since 2007, the latest six-monthly update on Auckland's commercial property market shows.

Zoltan Moricz, research director at consultants CB Richard Ellis in the PWC Tower on Quay St, said landlords were having to offer sweeteners to office tenants.

He said the city's empty office space was enough to accommodate about 6600 workers.

And the scenario for developers holding empty commercial development sites was even more dire.

The 50 per cent fall in value of their land banks was based on evidence from the few transactions completed in the sector lately and could get worse, Moricz said.

"Vacant land is an area where the full extent of the price correction is still crystallising."

In the United States commercial property has been identified as one of the most worrying sectors for banks as they try to recover from last year's crash.

Mortgage defaults are on the rise and US office vacancies are likely to exceed 18 per cent next year, says research company Reis.

In Auckland the core CBD area had 103,000sq m of vacant space, Moricz found.

Property experts usually allocate an average 15sq m per office worker so those dozens of empty offices floors could house thousands.

The market is so poor leasing activity has declined rapidly. Moricz found 14,000sq m of prime CBD Auckland office space empty but a huge 89,000sq m of secondary office space going begging.

Prime offices usually command net rents starting at $300 a sq m and Auckland's CBD has a total stock of 420,000sq m of this type of office accommodation, enough for 28,000 people.

Demand for Auckland office space has fallen and after 10 years of steady rent growth and prices tenants are paying are also dropping.

Last year was marked by easing yields but this year was marked by falling rents, Moricz found. Prime office rents had fallen 8.7 per cent in the past year and secondary rents were down 14 per cent.

"The leasing market has become less active in the last few months. The continuing fall in net effective rents in our assessment has been largely due to increasing incentives reflecting low demand, increasing vacancies and adverse market sentiment."

Moricz has also noticed a rise in sub-leases where one tenant assigns a lease to another.

This trend could have a significant negative effect on rents, he said.

Industrial property was in better shape than office property, Moricz said.

The latest report from rival consultancy Colliers International has also found the office market moving into poor shape.

"New Zealand now joins a not-so-exclusive club of countries where returns are going underground," Colliers found.

"While 12 quarters have passed since the United States market peaked, and 11 in Britain, it is only seven short quarters since annual returns peaked in New Zealand.

"Notably, although Australia and New Zealand have been slow starters, returns have fallen much more quickly here than elsewhere."

Moricz said he did not expect any sharp recovery in commercial property.