Jones Lang LaSalle has released its latest Real Estate Intelligence Service research report for the first half of 2012 which shows occupier options continuing to dwindle in Auckland city.
According to the report, the Auckland CBD vacancy rate decreased 1.6 percentage points to 11.2 per cent over the past six months with around 112,000 sq m of space currently available. Development activity in the CBD remains low with only one significant project due for completion in 2012. However, strong development in the CBD fringe continues with a prominent trend noted for a high level of office refurbishments primarily funded by motivated landlords aiming to attract and retain tenants.
Real Estate Intelligence Service says rental rates in Auckland are for the most part increasing in both face and net effective terms but rental rates in Wellington have either plateaued or fallen. "Auckland CBD office yields have firmed marginally, reflecting the popularity of fixed income returns which commercial property often provides," it says.
Mark Grant, national director of office leasing for Jones Lang LaSalle says Auckland is leading the way in shaking off the economic effects of the last few years but a combination of slow public sector activity and building stability issues continue to suppress the Wellington market.
"A residual slowdown of new office developments in the Auckland CBD and resulting stock coming on to the market has seen landlords competing for quality tenants and retaining existing tenants through a clear trend for high level office refurbishments. Tenants need to think early about securing options on the best space, while landlords need to think about how to maximise the potential offering and secure the best tenants."
Real Estate Intelligence Service says the industrial property market in Auckland and Wellington has continued to show solid demand over the last half year, reinforcing investors' preference for the sector. "Occupier demand for industrial space has grown, with all regions of the Auckland industrial property market showing declining vacancy levels. Demand in Wellington has been more moderate."
Both cities showed industrial development growth and the last six months has seen the completion of many properties. Rental rates have remained steady with small gains in industrial office rates. "Given strengthening demand for high quality premises in both locations, we expect to see steady uplift in prime industrial rates in the near term, with slower growth in secondary rental rates," says Sam Smith, director of industrial sales and leasing for JLL.
"Auckland's industrial sector is categorised by an emerging new-build trend and existing building trend. Tenants are looking to new-build premises to leverage the efficiencies modern buildings provide. This is especially noticeable for distribution facilities in popular precincts such as Highbrook and the airport. However, existing buildings, especially in the established precincts such as Mt Wellington and Penrose still remain popular. From an investment perspective, the industrial sector provides a relatively risk-averse investment with low volatility attracting many investors. While we have buyers, the volume of quality stock to sell them remains low."
The report says strong interest in high quality Auckland industrial property continued, with very buoyant sales under $2 million.
In the retail sector vacancy levels rose slightly across all Auckland retail markets with the CBD retail vacancy rate increasing to 6.5 per cent. "We do not see this increase as a trend, but rather a result of specific properties entering the marketplace vacant," says Chris Beasleigh, JLL's associate director of retail sales and leasing.