KEY POINTS:
Conditions in the Auckland CBD office market are ripe for development of a new $200 million-plus high-rise tower.
Consultancy Jones Lang LaSalle says the city needs another A-grade block like the Vero Centre, PricewaterhouseCoopers Tower or Lumley Centre.
"We believe the time is right for a developer or landlord to consider launching a new premium A-grade office development," said JLL research manager Kim Bannon and advisory director Arthur Harris.
But tenants won't find a new tower cheap. For the project to be viable by 2009, rents would need to rise from today's $480/sq m maximum to $520/sq m annually, they said.
"We anticipate anchor tenants would be prepared to pay a premium to secure the right premises," they said. "Investor demand exists for such a product and the sheer weight of capital seen in New Zealand and internationally will drive this."
Multiplex is putting up the new BNZ national headquarters at 80 Queen St and the city's tallest apartment tower, at 67 levels, has been promised by Korean investors.
But no developers have announced plans for a multi-tenancy high-grade office block in the city.
Bannon and Harris picked possible sites for a new tower as above the Chancery carpark building, above the Downtown Carpark on Customs St West, atop Westfield's low-rise Downtown Centre on Albert St or on the vacant site used for parking between Fort St and Shortland St.
"This list is by no means complete - if a developer sought a site then more creative solutions could be considered, such as an amalgamation of sites," they said.
A group of tenants whose Auckland office leases expire between next year and 2010 would underpin a new tower.
Developers had plans for smaller office developments in the Viaduct and Quay Park, but these zones had height restrictions, they said.
Demand is high for a much larger new tower because tenants have few options for prime office space.
Colliers International's Alan McMahon found Auckland office vacancy levels at "almost nil", comprising a few small offices in the city.
Auckland's core CBD premium-grade office vacancy was running at 3 per cent, forecast to rise only marginally this year to 4 per cent, he said. Wellington prime office space is even tighter, with a 0.6 per cent office vacancy rate, predicted to rise to 2.5 per cent as more new offices are completed this year. Christchurch is running at a 0.1 per cent vacancy rate, forecast to rise to 0.5 per cent.
And Colliers said industrial property prices would also continue to rise.
"Strong investor appetite has continued to put upward pressure on prices," Colliers said.
Zoltan Moricz, CB Richard Ellis research director, found prime Auckland vacancies at 3.1 per cent, amounting to 389,631sq m available to rent. Secondary CBD office space is more plentiful, with a 12.7 per cent vacancy and 804,268sq m on the market for around $161/sq m net annual rent.
He said the Britomart project and new space being rented by shipping line Maersk NZ in heritage buildings such as the former CPO was an example of "the sideways shift of tenants between existing prime space".
The retail property sector is also robust, as the bullish housing market, tight labour supply and falling petrol prices push up consumer spending, leaving shop and mall landlords in a particularly strong financial position.
The Property Council's investment performance index survey of 280 properties worth more than $5.9 billion found commercial investors got an annual average return of 18.98 per cent in the September year, marginally up on the 18.03 per cent of 2005. This latest return set a record, the council said.
McMahon, who is also the council's research chair, said returns from real estate had outstripped the share market and bonds.