Auckland's CBD office vacancy rate has declined for the third consecutive half year to an historic low of 7.8 per cent, exacerbating already tight market conditions, says Bayleys Research in its latest overview of this market

The vacancy is down from 10.6 per cent in January last year and is now at its lowest level since Bayleys Research began its CBD vacancy survey in 2003, says Ian Little, Bayleys national research manager.

"The latest fall has been driven by a sustained tightening of space across all office grades. While the prime end of the market has experienced very tight conditions for some time now, the overall reduction in empty space over the past year has been predominantly driven by a significant reduction in secondary vacancy rates, with a large drop in B-grade vacancies from 15.4 percent to 10.7 per cent."

Little says the uptake in secondary space reflects, to a large degree, the lack of opportunities which occupiers have at the top end of the quality scale. Vacancy for prime space has reached an all-time low of just 0.3 per cent down 1.4 percentage points, over the last 12 months.

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"The vacancy rate has continued to fall despite renovations and new builds being reintroduced to the supply chain," Little says. "Continuing employment growth in the service sector - with ­ BNZ BusinessNZ Performance of Services Index at its highest level since 2007 ­- is a significant contributor to strong business demand for good quality premises to lease or buy to occupy in the CBD."

The Bayleys Research survey shows a net absorption 20,435 sq m of CBD office space in the second half of 2015, the highest take up for a six month period since the latter half of 2012.

Strongest demand for office buildings continues to be focused on the CBD's northern precinct, adjacent to the waterfront, with vacancy in this area falling 3.1 percentage points since the start of the 2015 calendar year to an historic low of 6.3 per cent.

"With the majority of blue chip tenants situated in the northern sector, it is hardly surprising that nearly 80 per cent of the prime premises are positioned here," says Little. "However, the southern CBD vacancy rate, where the majority of education tenants are located, also decreased significantly from 12.6 per cent to 9.8 per cent. This is the first instance of southern CBD vacancy recording under 10 per cent since our monitoring of north versus south take up began in 2007."

Little says a combination of new developments and tenant relocations which will occur over the next 18 months will provide some opportunities for tenants seeking space despite the extremely tight current conditions.

The imminent completion of Fonterra's new headquarters on Fanshawe St will leave its current property at 9 Princess St available, although one of the reported options being considered by the new owner is conversion to residential.

Another building next to Fonterra's new headquarters, that is being developed by a joint venture between Goodman and Singaporean government-owned GIC, is scheduled for completion in the third quarter of this year.

Bayleys will be taking three floors with the top two levels still available for lease, as is around 3700 sq m of space Bayleys will be leaving behind at its current head office at 4 Viaduct Harbour Avenue.

Also becoming available later this year will be one of the buildings in the Spark City complex in Victoria St, with 6316 sq m of office space, that has been occupied by TVNZ while its headquarters building is being renovated.

Further out, Vodafone's decision to consolidate its Auckland operations at Smales Farm on the North Shore will free up the 13,932 sq m CBDbuilding it leases on the corner of Fanshawe St and Halsey St when the lease expires in April next year.

The largest new confirmed development is Precinct Properties' 39-level office tower on the Downtown Shopping Centre site on the back of 52 per cent tenant pre-commitment.

PwC will be the anchor occupant and the property will be part of a new precinct to be branded Commercial Bay. It will include Precinct's four other surrounding office buildings that will also be linked to a retail centre comprising around 100 shops, restaurants, cafes and bars set in a laneway environment. Demolition of the existing shopping centre is scheduled to commence in June this year with the tower expected to be ready for occupation in mid-2019.

Other large scale developments scheduled for the CBD include the redevelopment of the former NZME (New Zealand Herald) site at 1 Mill Lane where Mansons TCLM has consent for a 35,000 sq m office development.

In the Wynyard Quarter, Precinct Property has secured the development rights for up to 46,000 sq m of new space. It has commenced work on two buildings, one of which involves the gutting and complete refurbishment of the former Masons building. The other is a new building head-leased to GridAkl, an innovation hub for startup ICT, and digital media companies managed by Auckland Tourism Events and Economic Development (ATEED), a council controlled organisation.

"Despite these new projects, in the short term the supply of office accommodation in the CBD will remain extremely tight, leading to further upward pressure on rentals," says Little. "The last 12 months has seen significant rental increases particularly for prime space which can currently command face rentals of $650 per sq m in high demand precincts."