Light at the end of the tunnel brings commercial market back to life

Zoltan Moricz Photo / Supplied

Auckland's commercial property development market is showing signs of waking from a long hiatus after the global financial downturn, a survey by commercial real estate company CBRE has revealed.

"The focus is starting to shift towards the development market across the Auckland office, retail and industrial sectors," says senior director of research and consulting Zoltan Moricz in CBRE's latest New Development Monitor.

The survey of the property development pipeline indicates that, while the overall amount of new development activity remains comparable to last year, the number of projects in the early feasibility stage is on the increase.

CBRE defines the "early feasibility stage" as the time when clear plans on the exact size and configuration of a building have not been finalised and building consent has not been sought.

"The increase in the number of projects at this stage signifies an increasing number of parties are dusting off previously shelved development plans or investigating new development options," says Moricz.

"In terms of construction activity, 273,000sq m of new space is under way in the Auckland property market.

There is a fairly even spread between the main sectors with about 80,000 to 100,000sq m under way in each of the office, retail and industrial sectors."

Moricz says that in the office sector, activity is focused on the suburban and the fringe CBD markets.

"There are 15 projects under way in the suburban office market.

"Several of these are smaller developments in secondary or non-mainstream suburban office markets and the largest development is the Nuffield Corporate centre in Newmarket by Manson TCLM."

The amount of industrial development in progress had reduced from six months ago by about 20,000sq m to 99,000sq m.

Activity was concentrated around South Auckland, in East Tamaki, Mangere and the airport corridor.

Moricz says the retail development market was active, with more than 80,000sq m under construction.

"There are a number of large-format retail-based developments under construction, and we expect building work on a number of retail centre projects to commence, such as the new Massey North Town Centre at Westgate."

Moricz says pre-commitment levels vary substantially among projects under construction.

"Pre-commitment is only around 50 per cent for the office projects increasing to 63 per cent for the retail projects and 80 per cent for the industrial."

CBRE's national director of structured transactions and advisory, John Schellekens, says the increasein development is being underpinned by more receptive banks.

"There is no doubt that it is far easier now to fund development, compared to 2008 through 2010, when it all but dried up.

"Banks are now very supportive of good commercial projects and developers can secure funding to cover a significant proportion of construction costs, so long as loan to value ratios are manageable.

"Residential development now also looks more do-able, with attractive interest rates and banks back to offering home loans up to 95 per cent of value - all of which underpins pre sales and therefore development feasibility."

Moricz says another reason for this is that market is improving, even if "cautious optimism" remains his watchword at this time of global uncertainty.

"Vacancy has now peaked in most markets, rents have generally bottomed out and more people are now starting to see the light at the end of the tunnel."