Speculative building development (spec-building) has returned to the Auckland commercial and industrial property scene following a pick up in corporate leasing activity.
"A rapidly diminishing supply of prime space is resulting in a number of larger, well-funded developers undertaking new buildings without waiting for tenant commitment," said John Church, commercial and industrial general manager for Bayleys Real Estate.
"Large office tenants are looking for big floor areas, high seismic ratings and green ratings or sustainability features," said Church. "For industrial tenants, the focus is on high stud heights, a high ratio of warehouse to office space, good container handling facilities and capacity for future expansion.
Mansons TCLM, which has a long history of commercial spec-building has a number of recently completed office buildings and projects under construction in the market which have been undertaken without any tenant pre-commitment.
In one of its spec-developments, the 5600sq m Nuffield Corporate Centre at 73 Remuera Rd, Newmarket, Bayleys has signed up tenants for more than half of the space close to a year out from its completion, with Watercare Services the anchor tenant.
The building's office floors are more than 2000sq m.
In nearby Parnell, Samson Corporation's Geyser Building, New Zealand's first six-star rated green building, has also leased up quickly with close to 80 per cent of its office space already tenanted.
Further south, NZX listed Goodman Property Trust already has the "full up" sign out on a new 5500sq m office building in its Central Park complex in Auckland's popular Southern Corridor precinct. It began the four-level building without tenant commitment but it is now fully leased to Genesis Energy and Restaurant Brands ahead of completion in July.
More of the same is happening in the industrial market with two uncommitted developments undertaken by Auckland International Airport. One, a high-stud 3300sq m industrial building with additional land for expansion on the corner of Landing Drive and Airpark Drive has been leased shortly after completion to Spaziocasa by Bayleys Manukau.
"The increase in speculative development is a strong indication that the recovery in demand for commercial and industrial premises is moving up a cog," said Church.
He said that while a pick up in tenant activity was the main driver behind the increased leasing activity, a proposed tax change on how cash inducements are treated, which comes into effect on April 1, had also been a galvanising factor. From that date tenants will have to pay tax on any such inducements which form part of a leasing agreement.
"A number of big corporate tenants that have been looking around for some time have been prompted to make a commitment before the tax change takes effect. In very large leases it means a difference of millions of dollars to the net benefit a company receives."
What? Speculative commercial and industrial building
Situation: On the increase in Auckland
Causes: Diminishing supply of prime space
Demand for higher seismic and green ratings
Pick up in corporate leasing demand
April 1 tax change