Office vacancy rates have edged up overall in Auckland's central business district and city fringe but fallen in the southern corridor office precinct in Greenland and Penrose, according to Bayleys Research's latest surveys.
However, the prime vacancy rate for premium and A-grade premises in the Auckland CBD has reached a new record low with a vacancy of just 3.2 per cent as at January 2007. The CBD prime vacancy rate has been edging down and recording new low levels every six months for the past two years, says Gerald Rundle, manager, Bayleys' Research. There are now only small pockets of this type of space available in the central city.
A common theme of all three surveys, which provide the most comprehensive overview of the state of Auckland City's office market, is the continued tenant preference for high quality office accommodation, says Rundle.
The overall vacancy rate in the Auckland CBD edged up from 9.5 per cent six months ago to just under 11 per cent according to the latest Bayleys Research and Telfer Young Research survey.
The main reason for this has been Air New Zealand's relocation of its head office operation to new purpose-built premises on the corner of Fanshawe and Beaumont Streets, close to the harbour bridge. It occupied a majority of the space at the Downtown House on Queen Elizabeth Square and over 6000 sq m of space at nearby Quay Tower.
Rundle says Downtown House is to undergo refurbishment and is expected to attract good tenant interest because of its strong location overlooking the waterfront and opposite the Britomart Centre at the northern end of Queen St.
The former Simpson Grierson Building in Albert St also has approximately 10,000 sq m of vacant space as a result of the legal firm's relocation to the Lumley Centre.
The only significant new CBD construction project now under way is of Bank of New Zealand House at 70-80 Queen St, being redeveloped into a commercial office tower by its new owner Multiplex. This will comprise over 20,000 sq m of high quality net lettable space, of which BNZ will occupy more than 60 per cent. The project is expected to be completed by September 2009.
Outside the CBD, top level office accommodation in the city fringe has continued its strong performance, with the past three years of surveys recording vacancy rates only slightly above 1 per cent for A-Grade space.
The overall vacancy rate for the city fringe has remained relatively stable over the past 12 months, increasing slightly from the 8.1 per cent recorded in January 2006 to now sit at 8.6 per cent, according to the latest Bayleys Research survey.
The low vacancy level for good quality premises in the Auckland city fringe office market - Parnell, Grafton, Newmarket, College Hill and Newton - is in contrast to the lower graded buildings. The C-grade vacancy rate has increased by over 2.5 percentage points to sit at just under 12 per cent.
Owners of lower grade buildings are starting to feel the pressure from a leasing market seeking quality working environments, says Rundle. A number of owners are planning refurbishing, because many of the vacant premises that have been refurbished over the last 12 months have been successfully leased.
One of the major redevelopments in the city fringe in 2007 will be the 4000 sq m of office accommodation being redeveloped in the former Feltex building at 135 Symonds St. This building has been mainly vacant for a considerable time, impacting heavily on vacancy rates in the area. The site is receiving a total overhaul with a hotel development under way.
The southern corridor overall office vacancy rate now sits just below 8 per cent, down from the 10 per cent recorded in January 2006.
A significant proportion of the uptake in office accommodation in this precinct over the past 12 months has been of A-grade space with more than 5000 sq m being leased.
This has pushed the A-grade vacancy down to around 9 per cent and is the main factor behind the decrease in the overall vacancy rate.
The fall in vacancy levels is in contrast to the results of 12 months ago. The development of a large number of modern office buildings in 2005 pushed the A-grade office vacancy up to 16 per cent or just under 12,000 sq m of vacant office space in January 2006. The latest results show the market is now starting to soak up these new developments, says Rundle.
He says many of the new office buildings that have been built in the precinct over recent years are characteristic of the high standard of office accommodation now being sought.
They generally offer large floor areas, proximity to amenities, adequate car parking and quick and easy access to the motorways and main arterial routes. Though there have been a small number of tenants upgrading to higher quality buildings within the precinct, the main uptake of space has come from tenants relocating to the southern corridor, mainly from other parts of Auckland.
This has helped to keep secondary (B and C-grade) office occupancy levels high, although any further tenants vacating from C-grade office accommodation, as revealed in other Bayleys Research office surveys, could result in a slight increase in the overall vacancy rate for the southern corridor in the future, says Rundle.
Quality space is dominating the southern corridor with almost half the office accommodation now of A-grade standard. This is in contrast to other main office precincts around Auckland where A-grade space makes up less than 30 per cent of the total floor area.