Big players get ready for storm

BP has leased space for nine years at 73 Remuera Rd, Newmarket, with two three-year rights of renewal.

There has been a distinct rise in the number of large corporates looking to secure long-term tenancies in anticipation of commercial rent increases, according to Jones Lang LaSalle.

National director of markets Mark Grant says a lack of new and available stock is increasing the upward pressure on rental values.

"We can already see signs of gridlocked office accommodation, particularly in Auckland," Grant says.

"Recent work we have undertaken for clients like BP, Unisys, Aurecon, SunGard and IBM, who all had space requirements in excess of 2000sq m, has demonstrated a well-defined trend for office occupiers to act now in securing long-term office space.

"These commercial tenants are taking out long leases as a way of protecting themselves from the inevitable increase in rents and are effectually seeking shelter from the storm," Grant says.

"They are looking to insulate their occupancy costs with minimal variable exposure on their property footprint. This also works well for landlords, with the long-term security of blue-chip tenants in their portfolios."

The low vacancy rates are putting pressure on tenants to start their search for space well before their current leases expire. "This is especially the case for tenants with large commitments as they need the longest lead times and are the least nimble in their property choices," he says.

"With occupier demand increasing, office supply static and vacancy tightening, we are seeing rents beginning to increase especially in the CBD.

"Jones Lang LaSalle's forecasts suggest that these conditions are likely to trigger an anticipated round of rental increases which will push into prime stock first, with secondary stock following suit through 2015."

Matt Lamb, associate director of office leasing for Jones Lang LaSalle, says demand for quality, large-scale office space is becoming harder to meet. He says Jones Lang LaSalle has recently found more than 10,000sq m of space for a number of large corporate occupiers who were acting fast and "bunkering down" before the expected change to market condi- tions. For example, Lamb recently signed up BP to a nine-year lease, with two three-year rights of renewal, for its head office in Mansons TCLM's new, five green star-rated building at 73 Remuera Rd in Newmarket.

"Stabilising economic conditions have led to improving business confidence, which has been the catalyst for a new round of leasing activity, with tenants looking to secure better-quality premises.

"With the footprint of corporate occupiers growing, as well as rents on the rise, a number of landlords are also taking the reins and securing long leases," Lamb says. "This strategy allows them to maximise their tenure until the investment value rises, and allows them to secure their business for a period of low vacancy and rental increases."