Tenants shun CBD’s shoebox apartments

By Anne Gibson

Vacancy rates in Auckland’s inner-city apartments are rising and rents are dropping, leaving some investors’ family homes at risk.

About 1500 of the city’s 11,500 units are empty, unable to draw tenants even at rock-bottom rents, says a report by property-market analyst Kieran Trass of Hybrid Group and Leonie Freeman of Interactive Property Management.

"That’s a 13 per cent vacancy rate which is astronomical - I would have expected a 5 per cent vacancy rate," Mr Trass said.

But City Sales chief Martin Dunn questions the figures, saying they seem too high.

"We’re one of the largest players in the business and we’ve only got 40 units to let," Mr Dunn said, although he agreed rents had fallen.

Mr Trass reckoned it would take at least 2850 tenants to fill the empty units, which are mainly new and tiny studio, one- and two-bedroom flats on the CBD’s fringes.

Hardest hit are the student-style units in the Hobson, Nelson and Cook St areas where Mr Trass predicts rents will continue to plummet.

"The short-term view for Auckland’s CBD apartment market over the next few years looks grim," he said, predicting that many would stay empty for the next five years.

One Timaru investor who paid $212,000 for an Altitude unit on the corner of Hobson and Kingston Sts had been searching for a tenant since June, having been told he could expect $500 rent a week, Mr Trass said. He dropped that to $265 a week and still the unit was empty.

"He’d be lucky to sell it for $150,000 now," Mr Trass said.

Many investors had borrowed against all the equity in their own home, so rising vacancies and falling rents could force them to sell those homes and become tenants themselves, he said.

"Their dreams will have become a nightmare - they pay maybe $5000 to $10,000 a year on the loan."

Tenants are also quicker to leave, the Trass-Freeman report says.

In 2003, they stayed an average 19 months but now they stay 10 months, and they want incentives such as a week’s free rent.

Rents will rise only in the better-located top-quality apartments which tend to dominate the waterfront area. The report praises Auckland City for banning shoebox units which "currently dominate the oversupply of apartments".

But it says the long-term outlook is "ironically" sound due to the trend for more people to occupy the CBD.

Auckland City’s central area planning manager, Vijay Lala, said this could prompt owners to enlarge apartments by amalgamating neighbouring flats to create one attractive unit.

"I’m keen to see the economy of the CBD thrive and a lot of that has to do with people living in the CBD, so high vacancy rates are undesirable."

The council was still getting weekly applications from developers to build apartment blocks, often of more than 50 units. But the report had vindicated moves by the council on June 3 to ban smaller units.

Developers are banned from building studio units under 35sq m, one-bedroom units under 45sq m, two-bedroom under 70sq m and three-bedroom under 90sq m.

Apartment guide

* Small: About 30sq m, $130,000 to $300,000, tenanted by students, low-wage CBD workers and Housing New Zealand Corporation. High vacancies.

* Medium: About 50sq m, $300,000 to $750,000. Pitched at professionals working in the CBD. Low vacancies.

* Large: Well over 50sq m, $750,000-plus, often on the waterfront, plenty of parking, great views. Low vacancies.

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on production apcf05 at 24 Nov 2014 22:33:02 Processing Time: 418ms