Offices lie empty as oversupply hits CBD

13 per cent of Auckland's CBD floorspace is empty. Photo / Supplied

Nearly a fifth of Auckland's office stock could be empty in the next three years and already 13 per cent of the CBD floorspace is empty.

A report by Goldman Sachs JBWere analysts Buffy Gill and Marcus Curley, based on figures from Jones Lang LaSalle (JLL), shows a grim outlook.

"The outlook for offices looks quite negative in Auckland and Wellington, due primarily to expectations of oversupply. Auckland vacancy [rates] could reach up to 20 per cent by 2013 and Wellington over 10 per cent if all proposed developments go ahead," the analysts say.

Rents would fall as the two cities became even more oversupplied.

Retail property was a better-performing asset class. Vacancies in that sector stabilised in the second half of last year at around 4 per cent. Rents fell only slightly by 2 per cent and are forecast to fall only by 1 per cent this year, then recover next year.

Industrial property has an 8.4 per cent vacancy factor, driven by tenants moving to new purpose-built buildings, they say.

The effect on the NZX-listed property sector will be felt most acutely by AMP NZ Office Trust, Gill and Curley predict.

The trust has half its properties in Auckland's office sector. Kiwi Income Property Trust and ING Property Trust hold portions of their portfolio in the retail sector.

Office vacancy levels increased in both Auckland and Wellington in the six months to December 2009, ahead of JLL's expectations, the report says.

"This was particularly so in Auckland, where CBD office vacancy [rates] notched up from 7.7 per cent to 13 per cent. Wellington's CBD took less of a hit, with vacancy [rates] rising from 3.1 per cent to 4.9 per cent. While Wellington's increase was driven by lower demand, Auckland was largely driven by a significant boost in supply."

Auckland got 51,000sq m of new offices in the second half-year, due primarily to Brookfield Multiplex's Deloitte Centre of 22,000sq m and AMP's refurbishment of 21 Queen St, which resulted in 15,500sq m.

The Deloitte Centre is fully committed by BNZ and Deloitte, but 21 Queen St remains largely vacant.

Wellington's office supply reduced slightly because 12,000sq m was vacated for refurbishment.

Major Auckland developments under way include the Telecom building in Victoria St and the East Building in Britomart.

ANZ and ASB will move to purpose-built premises by around 2013.

Assuming these developments proceed, 106,000sq m will be added to the CBD over the next five years and total vacancy rates could reach a peak of 20 per cent in 2013, JLL forecasts.

The impact on A-grade office space was the most severe at a projected 29 per cent vacancy.

A global DTZ study out last week showed it cost US$6400 ($9100) to accommodate one desk or person in Auckland's CBD premium office space.

That puts Auckland in 48th place out of 114 cities. London's West End has the world's most expensive office space at US$21,530 per desk or worker.

Jeremy Simpson, a Forsyth Barr analyst, produced a paper on the outlook for listed property examining tax change effects.

A low-level land tax could depress land values by 10 to 15 per cent, he predicts. Overall portfolio values for listed property vehicles could fall by 2 to 5 per cent.