Downtown offices lie empty

Downtown Tauranga is facing its highest office vacancy rate in more than 10 years - about 12 per cent.
Numerous first-floor offices in retail strips such as Grey St, Devonport Rd, Spring St and Wharf St lie empty as businesses have downsized or simply closed. Some landlords are now doing "sweet deals" to attract new tenants.
"The office sector is an important part of the retail market," said Dickie Burman, manager and licensee of Bayleys.
"The workers are in the CBD from 9am to 5pm and there should be 60 to 100 of them from one office frequenting the shops. But that's not happening.
"There is a broad base of good office space available, but there's a definite lack of potential tenants."
Dennis McMahon, of McMahon Commercial, said: "What the CBD is missing is the start-up businesses such as the masseuse or beautician."
He blames a city council policy of allowing small, owner-operator businesses to sprawl into residential areas such as Fraser St and further down Devonport Rd and Cameron Rd.
"They could buy their own home and pay themselves rent through their own business," he said. "You could bring these people back into the CBD and fill the present office space twice over."
Mr McMahon has lobbied the council and achieved a result. There will now be stringent conditions attached to any person(s) wanting to convert a house into a business.
Mr McMahon said the present situation was largely economically driven.
"It's no different to the Hamilton CBD, and Auckland has pockets of 20 per cent vacancy rates. But there is a bit of issue with the first-floor vacancies [in Tauranga].
"They are typically above shops, are older buildings and have no lift access. The building owners we act for are very aware of the situation and if they want a tenant, then they have to meet the market."
The rents are not necessarily going down - though over the past 12 months some have by 10-15 per cent - but owners are doing deals to get their place tenanted.
Landlords sitting on empty space will offer a rent-free period of two to three months or contribute to the fit-out or have the rental staggered over three years, reaching the level they want in the third year.
The present rents for these first-floor offices are $12,000 to $15,000 a year for 100sq m.
Mr McMahon said it was not all grim news. The vacancy rate was not as bad as the early 1990s following the fall-out from the sharemarket crash .
"Then you had whole floors of 1000sq m vacant in the State Insurance and Inland Revenue buildings and Harrington House. We have been doing some good leases over the past six months - but there are still some holes," he said.
Most of the vacant space dotted around the CBD is for small offices or suites served by a common reception area - ideal for start-ups. But there is one whole empty first floor in the KPMG building in Grey St and it is being refurbished.
The area measures 500sq m and was formerly occupied by an employment/personnel agency. Accountancy firm KPMG and law firm Sharp Tudhope take up the next four floors.
One new office building is under way on the corner of First Avenue and Devonport Rd, being built by the established law firm, Sharp Tudhope.
Its staff will take the top two of four floors and spokesman Alistair Christie said his firm was talking with two other parties. There would also be a cafe on the ground level. "Given the [economic] climate, it takes time to get tenants but we have interest," he said.
Sharp Tudhope is constructing a four-level "green" building with office space of 2700sq m and two levels of basement carparking for 45 vehicles. It will be finished in April next year and the lettable area will be negotiated at around 300sq m.
"Because of the building and land costs, you can't do it for anything under that," Mr Christie said. "But there is demand for good quality stuff."
The Sharp Tudhope development will be the first major office building built in central Tauranga since another law firm, Holland Beckett (HOBEC), finished The Hub near the intersection of Cameron Rd and 11th Ave in September 2009.
"The timing could not have been much worse, with the onset of the recession," HOBEC director Bill Holland said. "Some of the space sat there for a year."
HOBEC moved into the third floor, accountant RHB took up most of the space below, and the ground level remained vacant until the Corrections Department took up half the space.
"Surprisingly, we've just had interest for the three other areas in the building," Mr Holland said. "Two of the interested parties are national companies wanting to set up a Tauranga office. There is very little high quality office space available in the city."
HOBEC is leasing its space out at about 275sq m. It has an advantage of providing adequate parking.
"Why would you take space upstairs in Wharf St where there is no parking?" Mr Holland said. "Clients want to come and see you for five minutes and sign papers and they want to park outside the office."
Another big office building is about to get under way on the corner of Cameron Rd and Elizabeth St - the old Bay Nissan site - and will greatly enhance downtown Tauranga's supply of A-grade accommodation.
Developer/owner Peter Cooney is planning at least 6000sq m of office space with on-site parking of 120 cars. Mr Cooney earlier said Tauranga was ready for a building like this - it was on a trophy site, it was a gateway to the city, and it would lift the profile and image of the downtown.
Tenancy arrangements are expected to be concluded within a month and it is understood tenants could be professional services companies such as law firm Cooney Lees Morgan, accountancy firm Staples Rodway, and Bayleys.
The office space vacated by these sorts of blue-chip tenants would need to be filled. Are there suitable tenants around and would the demand improve?
These are challenging times for the office accommodation sector in downtown Tauranga.
Mr McMahon said: "With promotion, the CBD can be re-activated."