Vacancy rates low in city fringe

AUCKLAND'S city-fringe office market is keeping up healthy leasing vacancy rates due to sustained demand, a new Bayleys Research survey shows.

The overall office vacancy rate for the city fringe, encompassing Newmarket, Grafton, Parnell, Newton and College Hill, is 9.6 per cent.

A vacancy level below 10 per cent is very healthy, given that developers have added more than 50,000sq m of new office space in the city fringe since 2000, says David O'Connell, who heads a Bayleys sales team specialising in the area.

O'Connell says the vacancy rate has remained largely stable for the past four years despite the substantial amount of office construction.

Quality space is in strongest demand, with only 1.3 per cent of Grade A office space vacant.

O'Connell says businesses are attracted to premises that will give staff a quality working environment and make a positive statement about their company.

Last month's city-fringe survey produced the following findings:

COLLEGE HILL

This precinct has been the city fringe's stand-out performer, having the lowest office vacancy rate, now below 5 per cent. There are virtually no Grade A office vacancies and Grade B and C vacancies are below 10 per cent. The vacancy rate for the area has fallen almost seven percentage points over the past two years, a 9500sq m reduction in vacant office floor area.

During 2003, removal of redundant office space for apartment development had a significant impact on the vacancy level.

Last year, it was the absorption of vacant space through business leasing which pulled vacancy down further, says Bayleys Research analyst Cameron Melhuish, who moves soon to Bayleys' city fringe sales and leasing team. The Auckland City Council's move from the central business district to College Hill played a major role, absorbing a vacant 3200sq m building in Sale St.

College Hill's low vacancy rate, combined with the level of tenant demand for office space in the area will increase pressure for rent rises provided low vacancy rates are sustained, says Melhuish.

Vodafone leaves soon for its flagship building in Fanshawe St, but it is understood its space has been "reassigned", the survey says.

NEWMARKET

In recent years, Newmarket has been one of the city fringe's top performing office markets.

Developments along Carlton Gore Rd have added 30,000sq m and virtually all of this is tenanted.

However, for the first time since Bayleys surveyed the area, the vacancy rate has risen above 10 per cent; it is now on 11.1 per cent.

Factors include ANZ Bank's move to its recently completed Carlton Gore Rd premises. Although this has effectively kept Newmarket's Grade A vacancy tight at below 1.5 per cent, it has left about 5500sq m of Grade B office space vacant at 277 Broadway.

Two developments nearing completion will put further pressure on Newmarket's vacancy rate. A four-level building is being developed by Core City Developments at 139 Carlton Gore Rd which will provide one retail level, three office levels totalling 4590sq m and 222 carparks.

Aspiring tenants include HWI Chartered Accountants and Connell Wagner, both upgrading from lower-quality Newmarket space which will be left vacant.

The second building, on the corner of Khyber Pass Rd and Kingdon St, is being developed by Morning Star Enterprises and is expected to be completed by mid-year.

The property will provide about 5000sq m of office space over five levels above a ground-floor retail area. Axon Computer Systems, now in Epsom, has spoken for the top two floors. The remaining office floors are available for lease.

NEWTON/PONSONBY

This has about 80,000sq m of office space and remains a strong performer with a vacancy of around 8 per cent over the past four years. The long-term commitment of several large tenants has played a major role in keeping the vacancy rate stable at a healthy level, says Melhuish.

PARNELL

Melhuish says Parnell with its "funky" appeal has a vacancy rate of 6.5 per cent and is dominated by smaller companies, particularly marketing and media businesses which prefer trendier spots. Insurance, property, information technology and finance-related businesses are also prominent. A 4000sq m office development is planned for Balfour Rd, subject to tenant interest.

GRAFTON

The office vacancy rate here is nearing 20 per cent, a five-year high.

Melhuish says recent roading network improvements have benefited the area but the lack of quality office space is holding Grafton back.

The market is dominated by smaller-scale Grade B and C buildings for which there is relatively limited tenant inquiry, and Melhuish says landlords need to take action if they are to avoid long-term vacancy.