Growing economic confidence is fuelling more activity in the office leasing market.

The results of the latest Auckland CBD office survey have confirmed there has been a noticeable tightening in the availability of premium and A-grade office space but the good news for city landlords is that the vacancy of secondary space has also dropped over the past 12 months.

Prime-grade vacancy, which encompasses premium and A-grade categories, was measured at 6.9 per cent in the January 2014 office vacancy survey by Bayleys Research.

"Premium space, encompassing the city's top echelon of buildings, has a vacancy rate of just 1.6 per cent," says Bayleys Research analyst Sarah Davidson.

"Significant floor areas in premium buildings are almost non-existent and they are quickly drying up in A-grade buildings as well.


"The overall CBD vacancy rate continues to decline and, for the first time since our 2012 mid-year survey, the reduction in empty space in the CBD isn't just evident at the prime end of the market.

"The secondary office market displayed a declining vacancy rate too in our latest January survey, although it remains elevated above its long-term average at just over 14 per cent."

Davidson says that growing economic confidence is generating more optimism in the business sector and this in turn is fuelling more activity in the office leasing market.

"A strong finish to 2013, with GDP growth of 1.4 per cent in the September quarter, points towards continued improvement in Auckland's office markets in 2014, led by the central business district."

Although Auckland has long been regarded as New Zealand's commercial capital, this is becoming more apparent as businesses continue to migrate north. Over the past three years Westpac, ASB and BNZ have consolidated their space requirements and moved into purpose-built head office locations in Auckland's CBD.

"The latest company to announce its head office move to Auckland is BP, relocating from Wellington. There appear to be various reasons for this, with one cited as the low seismic rating of BP House on Willeston Street."

Davidson says the realisation that there are diminishing accommodation options, particularly for tenants wanting significant amounts of space, has contributed to increased leasing activity. Additionally, greater business confidence has resulted in tenants being prepared to commit to longer term leases.

The Bayleys' Auckland leasing team says examples of such long-term leases over the past year include:

Watercare Services' leasing of 7000sq m of space for 12 years in a recently completed building at 73 Remuera Rd, Newmarket.

The Lotteries Commission committing to 1938sq m in the same building on a nine-year lease.

Lion New Zealand's occupation of 5139sq m of office space on a 10-year lease in the new GHD Centre in Napier St, College Hill.

Oracle NZ's leasing of 1700sq m on the top floor of 162 Victoria St West for nine years.

The leasing of 2500sq m on the top floor of 100 Beaumont St on a nine-year term to New Zealand's largest insurance broker, Crombie Lockwood.

Davidson says the supply situation is not as tight in the Auckland city fringe, where the overall vacancy rate remains elevated, although over the past year a split between prime and secondary space has become apparent, she says. Prime vacancy has started to move down, while secondary vacancy continues to increase.

"Prime office accommodation in the city fringe is performing well with strong uptake of the GHD Centre in College Hill, the Watercare Services Building in Newmarket and Geyser in Parnell.

"These high grade buildings have helped to reduce the prime fringe vacancy rates, although they have also contributed to the pressure on secondary buildings."

Market status
What: New Auckland CBD office survey
Undertaken by: Bayleys Research
* Tight availability of premium and A-grade space
* Encouraging decline in secondary vacancy
* Business optimism fuelling more leasing
* More companies moving to Auckland CBD
* Tenants signing longer leases
* Prime vacancy improving in city fringe
* Secondary city fringe vacancy increasing
* Prediction of continued overall improvement.