Lease portfolio contains warning

By Colin Taylor

Shortage of supply and limited new developments pushing up rents.

The Cider Building sets a high standard for new office space in Ponsonby.
The Cider Building sets a high standard for new office space in Ponsonby.

Its first Property Connector for the year contains CBRE's biggest portfolio of Auckland office properties for lease for two years, along with warnings about impending rent increases.

Lorne Somerville, CBRE's senior director of office leasing, says a shortage of supply and few new developments in the pipeline look likely to continue until early 2016 when a number of new buildings will be completed.

"CBD office vacancy levels over the six months to December 2013 have decreased to 10.2 per cent and this trend is accelerating into the first half of 2014," Somerville says.

"Non-CBD office vacancy rates have also continued to decline from a peak in December 2010 of 13 per cent, down to 9.5 per cent at December 2013.

"Due to the shortage of space we recommend that tenants who are looking to expand and relocate over the next two years start the planning process now as rising rents will be a consequence of the uplift in demand."

Somerville's views are echoed by CBRE's latest Auckland Yield & Rent Update subscriber-only research, in which Zoltan Moricz, the agency's head of research, says emphasis is shifting to face rent growth this year and beyond following a substantial decline in the level of incentives over the past two years.

"Office rent growth has been widespread across quality grades and geographic submarkets, and we predict growth rates of 4.9 per cent average in the CBD and 3.7 per cent average outside the CBD," he says.

The New Zealand environment stands out from the wider outlook, according to CBRE's latest Asia Pacific Office Market Outlook 2014 Report, which says global economic recovery is under way but growth expectations in Asia-Pacific are lower.

Net absorption is expected to grow after nine quarters of decline, backed by the gradual improvement in the global and regional economy and positive employment sentiment.

Demand for office space is expected to improve by 10 per cent this year, as multinationals expand into Asia, encouraging further growth.

However, the impact on rents will be minimal due to the level of new supply, with a moderate 2.7 per cent rental growth expected this year.

The report tips Auckland to have the highest total return outlook of any major Asia-Pacific office market this year, at 18.5 to 20 per cent, underpinned by having the highest capital value change of 12 to 13 per cent and the highest rental change, 7.5 to 8.5 per cent.

Notable leasing opportunities showcased in Property Connector include:

*The Lumley Centre, 88 Shortland St - from October, 1295sq m of column-less floor space with stunning views will become available on level 23. Amenities in the premium office tower include an on-site cafe, gym and conference facilities.

*The Cider Building, 4 Williamson Ave - will set the benchmark for new office space in Ponsonby providing 7450sq m over three levels and 281 secure car parks. Designed to 130 per cent New Building Standard (NBS), it will provide superior working spaces with large floor plates, an on-site cafe and supermarket. It is close to motorway connections, public transport and minutes away from the CBD.

*1 Nelson St - CBRE has a sole agency for 2400sq m of space with exceptional profile, large floor plates and signage opportunities on one of Auckland's busiest intersections. The building is being marketed as "having great character" and will appeal to prospective tenants wanting "non-traditional" space.

*414 Khyber Pass Rd - up to 2652sq m is ready for immediate occupation. At 100 per cent NBS rating and close to public transport, the available space includes a modern kitchen, boardroom, offices and extensive computer room. The upper floors are fully fitted out with a boardroom, meeting rooms, kitchens and server room.

*One Central Park - a new building with 6255sq m of space over five levels in a quality business estate at 660-670 Great South Rd that is home to 50 businesses and 2000 people. The low-rise building features large, efficient floor plates in a variety of configurations that will be available for lease in the fourth quarter of the year.

*Fonterra building, 9 Princes St - the dairy giant's new head office is under construction in Fanshawe St, so CBRE is seeking tenant commitment for Fonterra's current office from 2016.

- NZ Herald

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