Supply squeeze pushes rentals up

Designs for 55 Corinthian Drive, on Auckland's North Shore

Office space available for lease on the North Shore remains in very tight supply with little better quality accommodation available for occupation.

Bayleys Research's latest survey of office precincts in Takapuna, Akoranga/Northcote, Wairau Valley, Albany, Rosedale, Mairangi Bay and Browns Bay shows the overall office vacancy rate for the North Shore sits at 5.4%, little changed from 12 months ago.

Bayleys North Shore Commercial general manager Daniel Henderson says this figure is below the Shore's historical average vacancy rate and is indicative of a shortage of office accommodation, particularly for good quality premises.

"Conditions within the Takapuna market have tightened considerably with pockets of long standing vacancies being leased and little space above 700m2 now available," he says. "Better quality leasing opportunities in the Albany Basin are also few and far between. The only new office development currently underway is 55 Corinthian Drive (6,500m2) due for completion mid-2020 and largely pre-committed."

Henderson the supply shortage is pushing rentals up across most parts of the North Shore with the best quality office space in Takapuna and Albany being generally leased at between $275 and $350 per sq m and from $210-$275 per sq m for secondary space. Operating expenses (including utility services, insurance and rates), which tenants pay in most leases, are higher in Takapuna at $60-$95 per sq m than in Albany where they range from $50-$75 per sq m.

Car parking in office buildings is also considerably more expensive in Takapuna at $35-$60 per space per week than in Albany where it mostly sits at $15-35 per week.
Exacerbating the supply shortage on the North Shore office market has been the increase in leasing activity over the past 6-12 months amongst existing tenants as well as new players, says Henderson. These include Comworth Group, Penguin Random and Fuel 50 in Takapuna plus Plan B and Auckland Transport in Albany.

No new office development is currently underway although a number of opportunities exist, says Henderson. These include the redevelopment of the former Takapuna Council building at 1 The Strand, Takapuna. Although the Council's lease runs for another couple of years, it has almost fully vacated the premises and sub-leased part of the space to a number of large office tenants.

Henderson says the Hong Kong based owner of the 10,000sq m-plus property has yet to announce plans for the site. "In light of the current shortage of quality office space in Takapuna, coupled with the property's central location and proximity to the beach, any future upgrade of the building is likely to attract a wide range of tenant interest."

A major proposed redevelopment of the Anzac St car parking site could also incorporate office accommodation. As part of an Unlock Takapuna initiative, Auckland Council urban regeneration agency Panuku Development Auckland is overseeing a redevelopment of the under-utilised site into what it describes as a high-quality mixed-use precinct.

Work on a $25 million replacement five-level, 420-space public car park is already underway at Northcroft Street on the old Gasometer site and should be completed in 2020. A large $7 million public town square will be incorporated into the Anzac St redevelopment along with major upgrades to Huron and Northcroft Sts and Hurstmere Rd.

There will also be approximately 6000 sq m of residential and commercial buildings with potential to incorporate an element of new office space into this, although Henderson says this is unlikely to have much impact on the supply shortage.

He says there is also a real lack of good quality office space available for lease in Albany and a need for additional higher quality premises there as well. "There have been a number of large-scale office developments proposed for Albany over the years which have been overly ambitious and therefore did not get off the ground.

But there is a definite need for more new, medium-scale development right at the moment along the lines of the very successful development which is nearing completion at 55 Corinthian Drive and the neighbouring Mitre 10 head office building." Henderson says North Shore office investment property remains in steady demand and there is particularly strong interest in vacant or semi vacant buildings from owner occupiers which is indicative of continuing buoyant business activity on the Shore.

"Historically low interest rates are fuelling owner occupier acquisition activity because it means businesses can borrow to buy at a similar or lesser cost to renting."