KEY POINTS:
Top quality office space in Tauranga and Mt Maunganui is limited, with any vacant space coming on to the market being leased promptly, says the latest Bayleys Research report on the Bay of Plenty area.
"An active commercial leasing market in Tauranga and Mt Maunganui has held the
office vacancy levels at between 8 and 10 per cent," Bayleys property research analyst Chris Dibble says.
"While secondary office space is attracting fewer inquiries, the number of tenants seeking higher quality buildings has risen over the last 12 months, causing the gap between leasing activity for high and low quality office accommodation to widen further.
"This is a trend consistent with the flight-to-quality in other office markets around the country where tenants are demanding good quality office accommodation with modern services and fitouts that meet their specific requirements. In turn they are willing to pay premium rents for these properties and services."
Though there has been only a slight rental increase in secondary office space of approximately $10 a square metre over the past year, the interest in good quality office space and the lack of available premises has produced significant rental increases for good quality office accommodation.
"Newer premises and recently refurbished office space rentals now range from around $220 to $270 per square metre compared with rentals in the vicinity of $190 to $220 per square metre in 2005," Dibble says.
Over the past 12 months there has been a limited amount of construction activity of new high quality office premises resulting from a shortage of available and suitable land, along with a lack of pre-commitment from prospective tenants to developers which is required to launch new construction projects.
One of the latest developments under construction is Custom House at 314 Maunganui Rd in Mt Maunganui. The mixed use complex comprises ground floor retail, first floor office and two upper levels of apartment accommodation. Though just on the outskirts of Mt Maunganui's central downtown area, the office rental rates are still over $200 per sq m.
Dibble says the investment market in Tauranga and Mt Maunganui is strong with keen interest from purchasers for prime and secondary quality office buildings. As a result, the competition for limited investment opportunities has produced yields which are among the lowest in the country. The demand for well-located and tenanted properties is reflected in the rapid take up of proportionate property titles marketed by Bayleys in the KPMG Tower at 35 Grey St, with 100 titles of $96,612 each being snapped up by individual investors.
The blue chip fully tenanted property is situated in the heart of Tauranga's CBD and provides an initial 7.5 per cent per annum net return.
"Yields for prime quality office buildings now range between 6 and 7.5 per cent representing a 0.5 per cent firming in yields compared with last year. Secondary quality office space has also achieved firmer yields as a flow-on effect of investors willing to pay more for top quality premises."
The Bayleys report says the Bay of Plenty tourism market has been gaining ground over the past few years with the Tourism Research Council of New Zealand recording just under 3.4 million visits to the area in 2005 - well up on the 2004 statistics of 2.9 million visits.
"Forecasts for the 2006 year suggest the number of visits will level off, but the amount of money spent by visitors will increase by $7 million compared to 2005 to total just under $380 million."